Many people who are struggling with debt will choose to file for Chapter 13 bankruptcy. Those with higher income levels can qualify for Chapter 13 bankruptcy and don’t have to worry about losing any of their property in the process.
One of the main differences between Chapter 13 bankruptcy and Chapter 7 filings is that there is a mandatory repayment plan involved in a Chapter 13 bankruptcy. Before the courts will grant someone a discharge of their eligible debts, they will first have to make multiple years of payments per the terms of a repayment plan negotiated during a creditor meeting. Each repayment plan is unique because it reflects someone’s current financial circumstances and debts. With that said, there are two general rules about repayment plans that those considering Chapter 13 bankruptcy need to know.
There is only one payment required each month
One of the most convenient aspects of a Chapter 13 bankruptcy plan is that it has the same impact on someone’s financial management as debt consolidation would. Instead of sending payments to each creditor every month, they only have to send one payment directly to the courts. The trustee overseeing their filing will receive their payment and then distribute it to each creditor as negotiated previously.
That payment will leave a filer with little disposable income
The goal of a repayment plan is to make the most of someone’s financial resources so that they can diminish what they owe to their creditors before their discharge. The person filing has to provide a thorough accounting of their income, and creditors often demand the biggest payments they reasonably can. The person filing will typically need to commit almost all of their disposable income every month toward those payments. The repayment plan lasts for a minimum of three years, sometimes longer. They will need to fully commit to making those payments every month or risk losing their opportunity for a discharge.
When someone successfully completes a repayment plan, they will then potentially qualify for the discharge of whatever they still owe on their eligible debts. Learning more about the requirements of Chapter 13 bankruptcy can help people start preparing themselves mentally and financially for the process.