A repayment plan is part of what separates Chapter 13 bankruptcy cases from Chapter 7 filings. Those who cannot pass a means test or want to avoid asset liquidation may file for Chapter 13 bankruptcy instead of Chapter 7. They must commit to making between three and five years of payments to reduce what they owe on various eligible debts. The courts then discharge the remaining balances due after the completion of the repayment plan.
Filers often feel anxious about committing to several years of monthly payments. Who ultimately determines the arrangements for a repayment plan?
Multiple parties influence the final terms
Typically, the person filing for bankruptcy and their lawyer work together to propose a reasonable repayment plan. There is an expectation that filers should commit the vast majority of their disposable income toward the plan.
The total amount of their debts, the nature of the debts and their other household expenses influence the amount they pay and how long the payments last. Filers and their attorneys can propose any reasonable terms, but those terms are subject to review by the court-appointed bankruptcy trustee overseeing their case.
Representatives from individual creditors can also challenge unfavorable or excessively lenient terms. Once the plan has approval from all relevant parties, the filer begins making a monthly payment through the courts. The trustee distributes the funds submitted to each individual creditor to ensure compliance with the terms of the plan.
People concerned about the repayment plan mandated in a Chapter 13 bankruptcy may benefit from working with an attorney. Having guidance when creating and fine-tuning a plan can minimize the challenges involved in a Chapter 13 filing.