What Is a Bankruptcy Repayment Plan

For a lot of people, the thought of bankruptcy conjures up images of losing their home, vehicle, and other property. However, this is only the case when filing for Chapter 7 bankruptcy. This is not the only option. You are also able to file for Chapter 13 bankruptcy, also known as a bankruptcy repayment plan. Under this type of bankruptcy, your personal belongings are not liquidated. Instead, you make one payment to a court-appointed trustee. The trustee then takes this payment and disperses it to your creditors. 

Benefits of a Chapter 13 Repayment Plan

There are a number of benefits you can experience by going through with a Chapter 13 repayment plan. It should be noted that to reap these benefits, you must adhere to the repayment plan. Now, let’s take a look at some of the most important benefits you can experience with a repayment plan. 

Asset Protection

One of the most valuable benefits provided by Chapter 13 repayment is the ability to protect your assets. Unlike Chapter 7 bankruptcy, a repayment plan does not involve the liquidation of your assets in any way. This means that you get to keep your valuable personal property, including vehicles, real estate, and retirement accounts. For many people, the asset protection alone is enough to consider choosing a Chapter 13 repayment plan. 

Potential to Lower Monthly Payments

For most people who file Chapter 13 bankruptcy, their monthly payment will be much lower than what they were previously paying towards all of their debts per month. This is because when determining your monthly payment, the court takes into account your monthly income and expenses. They will try to make the monthly payment an amount that you can afford. As an added bonus, having one payment to make per month is much simpler to keep track of than multiple payments to different creditors. 

Prevent Foreclosure

When you file for Chapter 13 bankruptcy, an automatic stay is put in place. This is a legal device which requires creditors to stop all collection actions against you. This includes the foreclosure process. Meaning that if your house is being foreclosed on, and you file for Chapter 13 bankruptcy, the foreclosure process halts immediately. Usually, by the time foreclosure is a possibility, Chapter 13 is your only option to stop the process and keep your home.

Who Is Eligible for a Bankruptcy Repayment Plan?

Not everyone is eligible to take advantage of a bankruptcy repayment plan. There are certain requirements that must be met. These requirements are:

• You must be an individual or a married couple filing jointly. Businesses, such as LLCs, are not eligible for Chapter 13 repayment plans.
• You must have a regular, provable income that is high enough to cover both your essential living expenses and the proposed repayment plan payments.
• Your total unsecured debts cannot exceed $526,700, and your total secured debts cannot exceed $1,580,125.
• Your tax filings must be current.
• You cannot have recent bankruptcy dismissals. 
• You must complete a court-approved credit counseling course within the 180 days prior to filing. 

As long as you meet the above requirements, you are eligible for a bankruptcy repayment plan. 

How Often Are Payments?

Your first payment is usually due within 30 days of filing your repayment plan. After this, payments are monthly. You will be required to make these payments for 3-5 years. You should be sure that you will be able to make the monthly payments before agreeing to the repayment plan. Missing payments should be avoided at all costs. 

What Happens If You Skip a Payment?

If you do miss a payment, you are in breach of the court-ordered plan. The court trustee will likely file a motion to dismiss for material default. When this happens, your Chapter 13 case is dismissed, and you lose the protection of the automatic stay. This means that creditors can once again resume collection efforts against you. Essentially, you will be right back where you started.