Chapter 13 bankruptcy is commonly referred to as wage earner bankruptcy. Typically, a Virginia resident who continues to earn income would file for this category of bankruptcy when they do not pass the means test for Chapter 7. With Chapter 13, the debtor must prepare a payment plan for the court’s approval. Understanding the basics of how a payment plan works could help someone considering bankruptcy protection.
The payment plan
A payment plan allows someone suffering from excessive financial obligations an opportunity to pay off all or a portion of their debts. Since the debtor is in a negative financial situation, the debt could be restructured to make the payment plan reasonable. Now, the court does not impose a payment plan on the bankruptcy filer. Instead, the debtor crafts a payment plan proposal and submits it to the court. The judge could accept or reject the proposal.
The Chapter 13 means test factors into devising a workable means test. The means test examines the debtor’s monthly income, the debtor’s disposable income, and the length of the payment plan. Chapter 13 payment plans will run for three to five years.
The court reviews the payment plan to determine its validity. Expect the court to look closely at the debtor’s disposable income since this income would cover the obligations on the payment plan.
Anyone approved for Chapter 13 bankruptcy protections must follow through with their requirements to meet the monthly obligations. Debtors who do not make payments may discover their bankruptcy gets dismissed, and all bankruptcy protections would end.
Debtors who experience further financial troubles may run into difficulty making payments. There could be options available to those in such a situation.