Chapter 13 Bankruptcy: Your Payments

In Chapter 13 bankruptcy, a debtor can repay creditors in a court-approved three- or five-year payment plan. Unlike in a Chapter 7 bankruptcy, the debtor gets to keep nonexempt property, but must repay debts. The debtor, however, is not required to repay all creditors in full.

Who is Eligible?

Not every debtor will qualify for Chapter 13 bankruptcy. The bankruptcy code limits the amount of secured and unsecured debt a filer may have. Secured debt—debt secured by collateral—must not exceed $1,010,650 and unsecured debt, such as credit cards and medical bills, must not exceed $336,900.

How Long Do Repayment Plans Last

The term of the plan depends on whether the debtor’s current monthly income—average income six months prior to filing—falls above or below the median income in their state. If the debtor makes more than the median income in their state, they must propose a five-year plan. If the debtor’s income is equal to or less than the median income in their state, they may propose a three-year plan.

How Much Do Creditors Receive

The amount a creditor will receive depends on the type of the debt. A debtor must be able to pay certain debts in full during the term of the plan, including the following:

Administrative fees
Attorney fees
Priority debts, such as support payments, wages owed to employees, and nondischargeable tax debt
Certain secured debts, including tax liens, judicial liens, and promissory notes secured by personal property

While in the Chapter 13 plan, the debtor must also be able to afford to make payments on secured debt that will survive bankruptcy. Secured debt includes a mortgage, a home equity loan, or a car loan. During the plan, the debtor must stay current and must be able to repay any past due amount owed on the secured debt.

A debtor must also repay unsecured creditors. The debtor does not need to repay unsecured creditors in full. The amount unsecured creditors receive will depend on how much disposable income is left over after the debtor has made required payments to other creditors. Consequently, repayment of unsecured debt can range from nothing to 100 percent of the amount owed. Unsecured debt includes credit cards, medical bills, and back rent.

Making Payments

A debtor will begin making payments to the trustee within 30 days after filing for Chapter 13. The trustee will hold the money in an account. Once the bankruptcy judge has confirmed the plan, the trustee will distribute the payments to creditors. The debtor will be responsible for making regular monthly or bimonthly payments to the trustee for distribution to creditors.

Getting Legal Help

If you are considering filing for Chapter 13, a bankruptcy attorney can provide you with more details about how the repayment plan works. An experienced bankruptcy attorney can also help you determine whether, in your situation, it is best to file for Chapter 13 or Chapter 7. For more information, contact a local bankruptcy attorney.

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