How The Repayment Plan Works When You Choose Chapter 13 Bankruptcy

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Struggling to pay debts and facing a foreclosure or repossession are events that can rob you of peace and contentment in life. Living with debt problems is a stressful way to live for most people. If you choose to get help for your debt problems through Chapter 13 bankruptcy, you can find relief. This branch requires a repayment plan, though, and here is how this repayment plan works.

Your Payment Amount Depends on Your Income and Debts

Through Chapter 13, you must repay 100% of your priority debts and up to 100% of your non-priority debts. A priority debt is a secured debt, in most cases, or a debt that you cannot receive forgiveness on through bankruptcy. Your lawyer will separate your debts into these categories, and your repayment plan will include enough money to pay these off.

Your lawyer will also factor in your income to make sure you can afford the plan payments. Once set up, you will begin making the payments until your plan ends.

The Plan Duration Depends on Your Income

The number of payments depends on your income. You will either have a three-year plan or a five-year plan. If you earn a high income, the plan is five years. If your income is low, you will have a three-year plan. Your lawyer will compare your income to the state's average to decide if it is high or low.

The Plan Includes an Automatic Stay

When you file your Chapter 13 case, you will instantly find relief from your creditors through the automatic stay. The stay you receive is a court order that does two things:

  1. Prevents your creditors from contacting you for payment on the debt you owe.
  2. Forces your lenders and creditors to accept the payment plan the court approved for your Chapter 13 case.

If your plan lasts for three years, you receive this protection for three years. If it lasts for five years, you get the protection for five years.

Completing the Plan Gives You Full Relief

If you use this branch of bankruptcy, you will only receive full relief from your debts if you finish it. Therefore, make sure you make every payment for the duration of the program.

Are you interested in finding out more about bankruptcy and how it works? If so, you can learn more by contacting a local law firm that specializes in Chapter 13 bankruptcy law.