Debtors may seek specific bankruptcy protections based on their current debt status. A California resident who passes the Chapter 7 means test could undergo a liquidation bankruptcy and put a relatively straightforward end to dealings with creditors. Those whose income and expense situation is dire but do not pass the means test may file for Chapter 13, a bankruptcy category that involves following through with a repayment plan.
The Chapter 13 repayment plan
The court does not create the repayment plan on its own. Rather, the debtor devises a three to five-year repayment plan that offers a monthly amount to cover a portion of debts owed and submits it for court approval. The plan serves as a way to renegotiate debt amounts, providing creditors with a portion of what the debtor owes them. Receiving some payment might be far preferable to creditors than defaults.
The approval by the court helps to ensure that the repayment plan is fair to all parties. The court’s review may examine all assets and obligations held by the debtor to establish the honesty of the claims.
Some debts may face a discharge, which means the court would free the debtor from any obligation to pay. Unsecured debt, such as credit card balances, may end up being discharged at the end of the plan.
Following through on the repayment plan
Anyone agreeing to the terms of Chapter 13 bankruptcy must follow through on the repayment plan obligations. Missing payments or walking away from the plan could result in a dismissal. That means bankruptcy protections end, and collection action or civil litigation may commence. Anyone who struggles to meet monthly payments may need to contact the bankruptcy trustee.
Following through and making all payments timely could lead to a preferred conclusion. Once bankruptcy proceedings end, the debtor could start their financial life over without burdens.