When filing for Chapter 13 bankruptcy, you must submit a payment plan. The plan shows the creditors how you will pay them for five years. If you need help deciding whether you should apply for Chapter 13, it's essential to understand how the repayment plan works.
How the Means Test Works
An essential aspect of the Chapter 13 repayment plan is the means test, which determines whether you can participate in your Chapter 13 repayment plan. If your income is insufficient, the courts will convert your Chapter 13 into Chapter 7.
If you filed for Chapter 7 initially, you might fail the means test if your income is too high, and you'll have the option of filing for chapter 13 or not pursuing bankruptcy at all.
The Length of Your Payment Plan
The length of time in which your repayment plan will last depends on how much you earn and your state median wage. You might not be obligated to pay for all your debts, but you will be expected to pay for a significant portion.
Once you have finished your repayment plan, creditors are not allowed to force you to make payments and cannot harass you over any debt that is left over because it will be discharged, like with Chapter 7.
Your Mortgage and Other Secured Debts
You can also continue making mortgage payments and won't have to worry about losing your home. You can also set new loan terms for your house, car, and other loans backed by collateral, so it's easier to pay off your debts. You can protect your property, and your co-signers will be better off because you will still pay off the debt.
Making Payments Under Chapter 13
Once you have submitted the payment plan, you will be expected to make payments even if your Chapter 13 petition has yet to be approved.
After you have begun making payments, you might need to modify the plan. Fortunately, a Chapter 13 plan can be flexible, and you can speak with a bankruptcy attorney about how you can make changes.
For example, you may need the judge to approve a reduction in your monthly payments because of a decline in income. It's not uncommon for debtors to fail to pay off all the debts under Chapter 13, and making your payments reasonable is essential. Then, you can protect your assets and eliminate debts to start fresh.
For more information, contact a bankruptcy lawyer near you.