Bankruptcy is not just for those with limited assets or income. There are different types of bankruptcy that can help people in a variety of different circumstances. Chapter 13 bankruptcy is accessible to even successful professionals. They do not need to worry about liquidating their assets as they might need to do in a Chapter 7 bankruptcy. There is no means test preventing someone from filing based on their income either.
Yet, the benefits of Chapter 13 bankruptcy extend well beyond simply being more accessible. The filer will have the opportunity to restructure some of their most pressing financial obligations and could eventually secure a discharge of the unpaid portion of their debts. However, Chapter 13 bankruptcy is actually a longer process. It takes multiple years to successfully complete a Chapter 13 filing and secure a discharge. The main reason Chapter 13 bankruptcy is such a lengthy process is that the filer must complete a repayment plan before their discharge.
How long do Chapter 13 payments usually last?
The filer has to notify their creditors about their bankruptcy and attend a meeting to address their obligations. They propose a plan, attend a creditor meeting and then finalize repayment plan arrangements with the courts. After that, they will make a monthly payment that the trustee distributes among eligible creditors.
The nature of the debt that someone owes, their income and their total value of assets influence how long they have to keep making payments before a discharge. The minimum length of a Chapter 13 repayment plan is three years or 36 months. During that time, the filer will need to make monthly payments. The repayment plan could require up to five years of payments before someone becomes eligible for a discharge. In cases where debtor’s income is higher than the statewide average they will be required to have a five year plan.
Typically, they will need to commit their disposable income to those payments. If someone’s circumstances change, they may need to go back to court as quickly as possible to adjust their repayment plan to reflect their reduced income or increased expenses. If someone fails to make all of the required payments, the courts may deny them their discharge and dismiss their filing.
Understanding the obligations that come with a Chapter 13 bankruptcy may help people choose the right option when dealing with financial challenges.