With Chapter 7 bankruptcy, all debt is typically not repaid. People just liquidate their non-exempt assets. However much money this creates is used to pay back a portion to creditors. But the rest of the assets are exempt, so there are no more funds, and the remaining debts are then forgiven.
Chapter 13 bankruptcy is much different. Instead of liquidating assets and paying creditors directly, a repayment plan is created. It generally lasts for anywhere from three to five years. This makes debt more affordable by spreading it out. But does it also mean that the person has to eventually repay the full value of all the debt that they owe?
From 10% to 100%
It can certainly mean that all debt has to be repaid, but it depends on the specific plan. The general range for Chapter 13 is between 10% of the debt and 100% of the debt. This will be part of the court order that establishes the repayment plan.
To decide how much has to be repaid, the court looks at a variety of factors. For one thing, they look at the makeup of the debt and the type of money that is owed. Is it for student loans, business loans, credit card debt, medical debt or something else entirely?
On top of that, the goal of Chapter 13 is to create an affordable repayment plan based on the person’s active income. So those with a higher income level may be required to pay a greater portion of the debt, whereas someone with very limited income may have to pay a smaller percentage.
Every case is unique, which is why it is so important to understand exactly what legal options you have and what steps to take as you go through this process. It can help to work with an experienced law firm as you do so.