Pennsylvanians who find themselves deep in debt with seemingly no way out are wise to consider the benefits of bankruptcy. For those who have property they want to keep such as a home or a car and earn regular income, Chapter 13 is often the preferable option. The difference between Chapter 7 and Chapter 13 is that Chapter 7 is a liquidation in which the debtor’s property is sold to pay debts. With Chapter 13, that is not the case. The repayment plan is often a concern for people thinking about Chapter 13.
In a Chapter 13, the debtor will pay off the debts over a certain period – generally five years. Payments will go from the debtor to the bankruptcy trustee who will then distribute payments to the creditors based on the plan. Once the Chapter 13 has been filed, a debtor is required to file a repayment plan along with the petition or within 15 days of when the Chapter 13 was filed. The court must approve it and the payments will be made to the trustee in a fixed amount on a regular basis. The payments will in turn be distributed to the creditors.
There are three classifications of creditors. They are priority, secured and unsecured. Examples of priority would be taxes and the costs of the Chapter 13. Secured are debts where there is collateral that can be taken if the debt is not paid. Unsecured generally includes credit card debt – the creditor has no right to debtor property with unsecured debt. Priority claims must be paid in full. All disposable income will be contributed to the plan within the five years it will generally last. Debtors who owe child support, alimony, student loans, fines for criminal acts and DUI, long-term payments such as a mortgage, and debts that are not covered in the wage-earner plan might not have those debts discharged.
Chapter 13 is a sound way to restructure debt, put an end to creditor harassment, and get back on stronger financial footing. However, before taking the next step, it is imperative to understand the various requirements of Chapter 13 and if it is preferable for the individual situation compared to a Chapter 7. Having legal assistance with the various aspects of the repayment plan is wise and a lawyer who is experienced in helping clients who are dealing with debt problems is the first call to make.
Source: bankruptcy.findlaw.com, “Repayment Plan,” accessed on March 20, 2018