What is "good faith" in a chapter 13 bankruptcy repayment plan?

When you file for chapter 13 bankruptcy, you and your attorney will develop a repayment plan, or schedule. This plan is based on a "good faith" effort on your part, meaning you "want" to repay your debts, but you can't and you're seeking help from the bankruptcy court.

This good faith is the reason chapter 13 plans work so well, because the court looks at what you can afford to repay, not what you owe. From that, a monthly payment is made to the trustee who repays your creditors in turn.

Will Creditors be Paid in Full?

Your creditors must accept whatever payment the court approves, and most often, it's much less than what you actually owe. Many people who file for chapter 13 will have payments as low as $150-$200 per month, where without bankruptcy the payments were over $1,500 per month. Obviously, the creditors will not get all of their money, but something is better than nothing and in the eyes of the court, you are making every effort to repay your debts.

This is also the reason why chapter 13 has a much less dramatic impact on your credit score. Many people actually find their score goes up after sticking to the repayment plan for a few months.