What is a Chapter 13 repayment plan?

by | Feb 15, 2021 | Bankruptcy Law, Chapter 13 |

A Chapter 13 repayment plan is one that allows you to keep your assets and repay mortgage or car arrears and a portion of your debts through a monthly payment program. The Chapter 13 repayment plan, as a part of Chapter 13 bankruptcy, allows you to repay a portion of your debts over the course of three to five years, depending on your income and your assets.

Most Chapter 13 repayment plans allow you to pay less than you owe, which is the benefit of choosing a Chapter 13 plan rather than consolidating your debts in other ways. However, you will need to get the judge and court to agree to the repayment plan that you set up in credit counseling sessions.

What happens once the court approves your repayment plan?

Once the court approves your plan, you will have to make the repayments on time. These payments are paid to your trustee, and your trustee then distributes them to the creditors individually.

What kinds of debts will you repay in Chapter 13 bankruptcy?

During your Chapter 13 bankruptcy, you will focus on repaying priority debts. These are debts that need to be paid in full, like child support payments and tax debts. You’ll then move on to paying secured debts, which may be repossessed if you don’t make payments. Finally, you’ll focus on unsecured debts, like credit card bills. The court will decide how much you can afford to pay of all these debts and decide if the repayment plan you come up with is reasonable.

While Chapter 13 bankruptcy is set up to run for three to five years, you can have it discharged sooner if you’re able to repay what you owe faster. So, for example, if you get a better job during your bankruptcy, you may be able to afford to repay your debts in half the time and ask the court to discharge the bankruptcy sooner as long as you are paying in full.

The bankruptcy will stay on your credit report for seven years, less than with a Chapter 7 bankruptcy that stays for 10, which is one good reason to try to pay it off early if you can.


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