Whether you live under the threat foreclosure, a lawsuit or garnishment from a creditor, or a constant barrage of phone calls from creditors wanting their money, you know that you need to take action soon in order to get your financial life back on track.
The problem is that you don't qualify for Chapter 7 due to your income, and you want to try to keep your home. You know that you could file a Chapter 13 bankruptcy, but you aren't sure how the repayment plan works. It may help to have some information regarding how it works in order to alleviate your fear and concerns so that you can make a decision regarding whether to file.
The order in which you pay is based on the type of debt
Your repayment plan basically sets out an order in which you will pay off your debts:
- Priority debts such as the costs associated with your bankruptcy and taxes receive payments first and in full.
- Secured debts, which are debts "secured" by a piece of property such as your home or car, receive payment next. If you wish the keep the property securing the debt, you either pay these debts in full or pay the value of the collateral depending on certain factors.
- Unsecured debts, such as credit cards, receive last priority, and in many cases, you may not have to repay them at all. As long as you fulfill the terms of your repayment plan to the court and the trustee's satisfaction, these debts may be discharged.
Repayment plans last anywhere from three to five years depending on your circumstances.
The bankruptcy court will need to approve your plan
You may not simply make up a plan and then starting making payments. The bankruptcy court will hold a confirmation hearing in order to allow for any objections from creditors and to ensure that your plan meets with all applicable laws and makes sense. For instance, if the court does not believe your financial situation allows you to fulfill the plan you propose, it may have you go back to revise it or order your Chapter 13 converted to a Chapter 7.
If your plan receives the court's approval, you will begin making payments either through a payroll deduction or directly to your trustee who then makes sure that the funds are distributed to your creditors in accordance with the plan. You will need to make sure that you stick to the plan in order to receive a discharge.