Chapter 13 Bankruptcy: Repayment Plans Explained

If you opt for a Chapter 13 bankruptcy, the bankruptcy court will expect you to stick to a court-ordered repayment plan for a period of up to five years. Each month, you will have to submit a payment to the bankruptcy trustee via money order, cashier’s check or voluntary wage garnishment. Your payments will be applied to your debts until the court discharges your bankruptcy.

You Must Remit All Disposable Income to the Court

Most districts will allow you to propose your own Chapter 13 repayment plan. Before confirming the plan, however, the trustee will evaluate your current income and past tax returns to ensure that you are applying all of your monthly disposable income to pay off your debts. A bankruptcy trustee has the option to approve or deny your proposed repayment plan.

Your Repayment Plan May Change Over Time

If your income changes, your monthly payments to the bankruptcy trustee may change as well. Each year, you must provide the court with copies of your tax return. The trustee may modify your repayment plan depending on whether your income increased or decreased over the year. You may also request a change in your repayment plan at any time during the year if your financial circumstances change.

You Don’t Have to Pay Off All of Your Debt

If your income isn’t sufficient to pay off all that you owe within a three- to five-year period, the bankruptcy court may reduce the balances of your debts and allow you to pay off as much as possible. Once you have paid the full amount requested by the court, your Chapter 13 bankruptcy will be discharged.

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