Filing for Chapter 13 bankruptcy can feel intimidating, but it’s also an opportunity to regain control of your financial future. Known as the “reorganization bankruptcy,” Chapter 13 allows you to keep your assets while repaying your debts over time. We’ll break down the Chapter 13 repayment process, explain what to expect, and show how this option can help you achieve a fresh start.

What Is Chapter 13 Bankruptcy?

The Basics of Chapter 13 Bankruptcy

Chapter 13 bankruptcy, often referred to as a “reorganization bankruptcy,” lets individuals with a steady income create a repayment plan to address their debts. Instead of liquidating assets, you work out a plan to pay creditors over three to five years.

Key Benefits of Chapter 13 Bankruptcy

  • Retain ownership of your home, car, and other assets.
  • Catchup on a mortgage or car loan
  • Consolidate debts into manageable monthly payments.
  • Discharge unsecured debt after completing the plan.
  • Court protection from creditors

How the Chapter 13 Repayment Plan Works

What Is a Chapter 13 Repayment Plan?

When filing for Chapter 13, you’ll propose a repayment plan to the court that outlines how you’ll handle your debts. Here’s how it typically works:

  • Duration: Depending on your income, the plan lasts either three to five years.
  • Court Approval: The court must approve your plan.

Three-Year vs. Five-Year Plans

  • Three-Year Plan: For individuals earning below the state’s median income.
  • Five-Year Plan: For those earning above the state median.

How Are Plan Payments Calculated?

Factors That Determine Your Monthly Payments

Your monthly payment is tailored to your financial situation. The court considers:

  • Your household income.
  • Your household size.
  • Secured and priority debts (mortgages, car loans, taxes, child support, etc.)
  • Necessary living expenses.
  • The total amount of debt owed in some cases.
  • Your ability to repay creditors while maintaining your household budget.

Who Receives the Payments?

Payments are made to a court-appointed trustee who distributes the funds to your creditors based on the priorities established in your plan.

Breaking Down the Types of Debt in Chapter 13

Priority Debts

These must be paid in full over the course of your repayment plan. Examples include:

  • Child support or alimony.
  • Certain unpaid taxes.

Secured Debts

These are backed by collateral, such as a mortgage or car loan.

  • You may need to pay these in full or continue regular payments.  Car loans are paid in full over the course of your case; mortgages will continue to receive regular monthly payments.
  • Some secured debts might qualify for a “cramdown,” reducing the balance owed to match the collateral’s current value.  This can happen when there is a second mortgage that is not secured by equity or a car that was purchased over 910 days before the case is filed.

Unsecured Debts

These debts, like credit card balances and medical bills, are lower priority:

  • Payments depend on your income and assets.
  • Any remaining balance will be discharged after successfully completing the plan. (Student loans will survive the case).

Can You Modify Your Chapter 13 Plan?

Adjustments Due to Life Changes

Your plan is usually flexible to accommodate significant life events, such as:

  • Job loss or reduced income.
  • Unexpected medical expenses.

How to Request a Plan Modification

If your financial situation changes, you can request the court to modify your repayment terms. An experienced bankruptcy attorney can help ensure the modification process goes smoothly.

What Happens After You Complete Your Plan?

Final Steps in Chapter 13 Bankruptcy

Once you’ve made all the required payments:

  • Remaining dischargeable debts are wiped out.
  • You gain a fresh financial start, free from the burden of past due balances.
  • No stress from collection calls or cases.

How a Bankruptcy Attorney Can Help

The Chapter 13 process can be complex, but you don’t have to navigate it alone. Our office can:

  • Help you create a repayment plan that is acceptable to the court.
  • Represent your interests.
  • Ensure you meet all deadlines and requirements over the three to five year case.

Questions to Consider

  • Have you explored whether a three- or five-year plan is better for your income level?
  • Do you have questions about which debts can be included in your repayment plan?
  • Have you considered how a bankruptcy attorney can make the process easier for you?

Take the Next Step Toward Financial Freedom

If debt is weighing you down, Chapter 13 bankruptcy could provide the relief you need. Contact our office today for a free consultation to discuss your situation and learn how we can help. Together, we’ll create a strategy to rebuild your financial future.