How Does a Chapter 13 Repayment Plan Work

25 May 2018

Chapter 13 bankruptcy does not automatically eliminate debts. It is beneficial to go into the Chapter 13 bankruptcy process knowing that you will regain control of your finances rather than get your bills wiped out completely. The nice thing is that those debts will be paid pennies on the dollar.

The goal when filing a Chapter 13 Bankruptcy in Columbus, Ohio, is having a federal judge “confirm” your financial reorganization plan. Part of that plan involves a bankruptcy trustee making payments to your creditors on your behalf. Each month that you are in a bankruptcy, you will make a payment to the trustee, and the trustee will redirect that money to creditors based on a plan you and the creditors have agreed to.

We provide more details on what gets repaid, how the repayment is calculated, and the terms of bankruptcy below. Before getting into the thick of it, know that working with an experienced Chapter 13 lawyer in Columbus will help you put together a plan you can live with. An attorney can also advise and represent you when you get into negotiations with creditors over how much you owe, what you can afford to pay, and whether you will continue to make payments on loans or surrender the property you are financing.


What Goes into a Chapter 13 Debt Repayment Plan?

All of your debt goes into a Chapter 13 Plan. The Chapter 13 attorneys at Calig Law Firm will set up the process by which you will pay those debts back. Some of these debts will be paid in full and some will be paid at a percentage. The debts that are paid in full are called secured debts because if they are not paid, the creditor is secured in the fact that they can take something back.

If you have a mortgage and want to keep your home, it will also be treated as a secured debt. This means you must make good on all past due payments, interest, and fees. One of the principal benefits of filing for Chapter 13 bankruptcy in Columbus is that doing so immediately stops a foreclosure. The filing gives you time to figure out how to get caught up on the mortgage or to turn over the property without incurring further penalties.

Car loans get treated much like mortgages in the Chapter 13 bankruptcy process. Unsecured debts such as medical bills, credit card balances, and signature loans can be negotiated down.


How Much Money Goes to the Bankruptcy Trustee?

The amount you pay will depend on several factors, including:

  • The amount of your secured debts;
  • The amount of your unsecured debt;
  • The fee the trustee takes, which is generally 6-7 percent of the total monthly repayment amount;
  • Your monthly income from all sources; and
  • Your basic living expenses such as rent, food, and utilities.

One very important factor will be your income. The court sets up a specific amount of money you are allowed to spend on living expenses (Utilities, Insurance, Food, etc.). If your expenses exceed this amount, the court will ask that you verify those additional expenses, or increase your monthly payment.

Note that you may not need to write a check to the trustee. You can set up a system under which your repayment amount is deducted from each paycheck and transferred directly to the trustee.


How Long Does Chapter 13 Bankruptcy Last?

A Chapter 13 bankruptcy repayment plan will remain in effect for three to five years, and the fact that you declared bankruptcy will show up on your credit report for seven to 10 years.

If unforeseen circumstances make it impossible for you to stick to your original repayment plan, you can file for Chapter 13 bankruptcy again or approach the court to convert the bankruptcy to Chapter 7. You will only qualify for Chapter 7 protection if your income falls below a certain dollar figure.

There is a lot more to know about the bankruptcy process. You can get all your questions answered by a bankruptcy lawyer in Columbus with the Calig Law Firm.

We offer confidential consultations and we take bankruptcy cases across Ohio. Call us at (614) 252-2300 to request an appointment. You can also connect with us online by filling out this contact form.


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