One of the biggest differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy is that a Chapter 7 filing requires the liquidation of assets to repay creditors, while a Chapter 13 filing requires a lengthy repayment plan.
Before the courts approve your discharge in a Chapter 13 filing, you first have to make at least three years of structured payments to the unsecured creditors whose accounts will be subject to the discharge granted by the courts. How do you establish that repayment plan during a Chapter 13 bankruptcy?
You typically have to attend a creditor meeting
The courts will appoint a trustee to oversee your bankruptcy case. One of their most important responsibilities will involve establishing and then overseeing your repayment plan. They will schedule a creditor meeting and send out notices to all of the parties with an interest in your case.
You or your attorney, the trustee and representatives from your creditors will all have a meeting where you review your finances and obligations. The trustee will typically require that you spend the vast majority of your disposable income each month paying down those debts. Exactly how much each creditor receives and how long you make payments will depend on the outcome of that meeting.
How the payments actually work
After your creditor meeting, you will have one set amount that you have to pay toward your unsecured debts. You don’t send small payments to each creditor. Instead, you submit your monthly payment to the courts, and the trustee will manage the rest. That way, there is a very clear record that you have made your payment on time and little margin for error when it comes to fulfilling the repayment plan obligations.
If your finances change during the repayment plan, especially if you lose your job, you may need to go back to court to renegotiate your repayment plan based on your changing income levels. Once you make all of the necessary payments on your debt, you will potentially qualify for the discharge of the remaining balance on all of those accounts.
Educating yourself about what happens during Chapter 13 bankruptcy can help you explore your options for improved financial stability.