Chapter 13 bankruptcy could provide someone with a long-needed financial reset. Individuals struggling with their money situation might find excessive debts and obligations impossible to address without assistance. Federal bankruptcy laws provide a basis for a fresh start, but bankruptcy filers must realize that creditors receive some payments on those obligations. Chapter 13 bankruptcy involves the debtor committing to a repayment plan to cover non-discharged debts. Effective preparation could make following through with the plan less complicated.
The Chapter 13 repayment plan process
With a repayment plan, a debtor makes a payment that finds its way to creditors holding the remaining debt. It’s important to note that the bankruptcy court won’t dismiss all debts, and the court may not accept an unrealistic payment plan. The court reviews the plan and considers the debtor’s income and living expenses, among other factors.
Creditors have a chance to challenge the payment plan. However, the court has the final say on the plan’s approval regardless of what creditors or filers prefer.
Not all debts are the same as some debts fall under the category of “priority debts,” which may include taxes and child support. Secured debts, such as car loans, and unsecured debts, like credit card balances, would be the other obligations addressed in a payment plan.
Following through with the payment plan
Failing to make required Chapter 13 payments could lead to the judge dismissing the bankruptcy filing. Once that happens, collection actions may resume. Individuals who find it difficult to make payments may benefit from informing the bankruptcy trustee about the situation to avoid problems.
Some people may find it necessary to switch to Chapter 7 bankruptcy if their financial situation deteriorates. Chapter 7 involves liquidation, meaning some eliminate some assets to pay creditors. Devising a workable strategy for paying the Chapter 13 repayment plan might be preferable.