A chapter 13 bankruptcy is a plan where you pay back a portion or all of your debt through a three to five year payment plan. How much debt you have to pay back depends on they type of debt you have, your income, and how much debt you can afford to pay.
To figure out your plan payment you will fill out a worksheet that goes over all of your monthly expenses. Any money you have left over after you calculate your expenses, will go to the payment. This is called your disposable income. If your income is below the state’s median income, you can propose a three year payment plan. However, if your income is above your state’s median income, you must be in a five year repayment plan unless you are paying back all of your debt.
The idea of a chapter 13 bankruptcy is all of your disposable income will be used to pay off your creditors. If your income increases after the plan is confirmed the chapter 13 trustee, under certain circumstances, can request the court to increase your plan payment.
Although a Chapter 7 bankruptcy is more common, there are instances where filing a chapter 13 may be more advantageous:
For the most part, credit cards, medical bills, legal debts, court judgments, foreclosure or repossession deficiencies, overdraft fee’s, and personal loans can be discharged in bankruptcy.
You cannot discharge the following types of debt in your bankruptcy plan:
To successfully complete a chapter 13 bankruptcy requires you to live a very disciplined lifestyle for the duration of the plan. The trustee expects you to live within the means of the plan. One benefit of successfully completing a chapter 13 is you will be able to build your credit faster than you otherwise would have from a chapter 7.
During your three to five year payment plan all of your disposable income is used to pay back a portion of your debt to your creditors. If you are successful at making your payments, the rest of the dischargeable debt you owe at the end of your chapter 13 will be discharged.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy under the bankruptcy code.