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How does the repayment period work in a Chapter 13 bankruptcy?

| May 24, 2021 | Bankruptcy | 0 comments

Most individuals who file for bankruptcy will file either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 involves the liquidation of certain assets to repay creditors, followed by the quick discharge of debts.  Any secured debts, such as payment for a vehicle, will need to be current when the debtor files and will be repaid on the same terms.  Chapter 13 also results in the discharge of certain debts, but only after the filer first makes a structured attempt at repayment facilitated by the courts.  Many times debtors can also restructure secured debts to reduce those payments.

That repayment period is arguably one of the biggest differences between these two forms of bankruptcy. It is also what allows people to qualify for Chapter 13 proceedings when they have higher incomes and more assets because there is usually not a requirement to liquidate personal property when the filer first attempts to repay the debts.

What does the repayments period involve in a Chapter 13 filing?

 The filer makes one monthly payment for all their debts, except for their mortgage. One of the most important parts of a Chapter 13 filing will be the renegotiation of certain debts and the establishment of a payment plan through the bankruptcy courts for others.

You may be able to renegotiate you car loan to allow you to keep the vehicle and reaffirm the debt while managing to avoid repossession.  A Chapter 13 can also give  you the opportunity to catch up missed payments on your mortgage to avoid foreclosure due to missed payments.  Other debts, like credit card balances, collection accounts and unpaid medical bills, will be part of your repayment plan.

Once a month, you will send a fixed amount that the courts distribute to your creditors. After you complete all of the necessary payments, which are 36 to 60 months, you can then move forward with the discharge of the remaining balances.

Chapter 13 bankruptcy can be the right choice for those who have assets they need to protect or who have a household income too high for them from qualifying for Chapter 7 bankruptcy.