Most people filing for personal bankruptcy choose between Chapter 13 and Chapter 7 proceedings. While there are other options for those in certain professions and other unusual circumstances, people typically have the option of pursuing Chapter 7 proceedings that may require asset liquidation or Chapter 13 proceedings that require a repayment plan.
Only some people qualify for Chapter 7 bankruptcy, as filers must pass a means test to show that they do not earn more than the average household income in their state. Those who do not qualify for Chapter 7 bankruptcy and those concerned about asset liquidation because they own property they cannot exempt may choose a Chapter 13 bankruptcy.
How long do Chapter 13 filers typically need to make payments before their eligible debts are discharged and their case is closed?
Each repayment plan is unique
The Chapter 13 repayment plan is often the product of careful analysis by the filer and their attorney. They proposed terms that they may then need to negotiate with the court-appointed bankruptcy trustee and creditor representatives. The factors that influence the terms of a Chapter 13 repayment plan include the overall amount of debt, the nature of the debt, the assets of the filer, the income of the filer and any other relevant factors, including the timing of when they assumed each debt.
There is usually an expectation that filers should commit the majority of their disposable income to their monthly payments. The amount they pay each month could potentially be less than the combined minimum payments required by all of their creditors at the time of their filing.
Personal financial factors also dictate the duration of the repayment plan. Chapter 13 repayment plans can last anywhere from three years to five years, depending on the circumstances. Filers who experience dramatic changes in their economic circumstances while subject to a repayment plan may need to petition the courts to modify the plan or consider converting their bankruptcy case to a Chapter 7 filing.
Working with an attorney is critical for those hoping to establish a sustainable repayment plan as part of a Chapter 13 bankruptcy. An attorney can assist with the creation of the plan and any negotiations regarding its nuances.