Some people call Chapter 13 bankruptcies “wage earner plans.” This form of bankruptcy gets this name from the fact that a filer is required to make multiple years of structured payments to the courts to reduce what they owe their creditors. The repayment plan model reduces risks of small errors or oversights in company records affecting someone’s discharge. The trustee overseeing a filer’s case will distribute funds paid to individual creditors every month, so there will be an authoritative record of these payments. Once they complete the plan, the filer will be eligible for a discharge of the remaining balances on their dischargeable debts.
People typically make between three and five years of payments on a monthly basis and are required to commit most of their disposable income to those payments. There is a lot of discretion related to how much a filer is required to pay and how much each creditor receives. Who puts together the repayment plan for a Chapter 13 bankruptcy filing?
The filer proposes the plan
The individual filing for bankruptcy or the attorney representing them will put together the initial repayment plan proposal. They will need to disclose all of their income and the debts that they intend to include in the repayment plan. There will then be a meeting that includes not only the person filing and the court-appointed trustee but also representatives from different creditors.
The trustee and those representatives will have an opportunity to ask questions and to challenge the details included in the plan. Creditors will receive a portion of the monthly payments based on their priority and the amount of the debt. In some cases, it may be necessary to make adjustments in order to obtain approval for the plan. It is of the utmost importance that people are honest when disclosing their income and also that they comply with the repayment plan to the best of their ability. If their financial circumstances change, they will likely need to send formal notice to the courts and update the plan to reflect their new situation.
Knowing what to expect during a Chapter 13 bankruptcy may help people feel more empowered about taking control of their financial situation by seeking debt relief in this way. Seeking legal guidance can provide helpful clarity in this regard.