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Important points about repayment plans with a Chapter 13

For people in Pennsylvania who are filing for bankruptcy, the circumstances will dictate which chapter they will use. While Chapter 7 is a liquidation and is often viewed as the easiest course of action, some debtors want to keep a home and a motor vehicle. They are also wage earners meaning that the courts will steer them toward a Chapter 13 bankruptcy instead. With Chapter 13 there are repayment requirements. However, the debtor might not fully understand certain aspects such as how the repayment plan is structured, how much must be paid, how long the payment plan will last, and what happens if the payments are not made.

With Chapter 13, the repayment plan is key. There will be a description in the paperwork as to how much must be paid to reduce the debts. Certain debts are required to be completely paid. These are known as priority debts. They are viewed as more important than others. Examples might be child support or taxes. If there are secured debts like a home or an auto, these must also be described in the payment plan. Debts upon which the debtor has fallen behind must be included in any payment plan. Any disposable income after making payments on secured debts will go toward the repayment of unsecured debts. If there is no disposable income, then this will not be an issue, but the debtor must make a good faith effort to pay.

The amount of time that the repayment plan will last generally depends on the debtor's income. If the average monthly income for the six months before the bankruptcy is more than the median state income, the plan will be for five years. If it is less, then it will be for three years. Failure to make the payments might occur due to job loss or some other issue out of the debtor's control. The trustee has the right to modify the plan to adapt to the situation.

People who are seeking to restructure debt and retain certain properties while making payments under a Chapter 13 bankruptcy must bear these issues in mind as they move forward with the process. Having legal assistance from an attorney who is experienced with helping clients who are thinking about filing for Chapter 13 is step one in the process.

Source: findlaw.com, "Chapter 13 Reorganization Bankruptcy," accessed on Sept. 12, 2017

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