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What to know about a repayment plan

On Behalf of | Feb 15, 2023 | Chapter 13 Bankruptcy, Debt Relief

If you are struggling to stay current with your debts, filing for Chapter 13 bankruptcy may be worthwhile. After a California judge receives your petition, an automatic stay of creditor activities will go into effect. In a Chapter 13 proceeding, debts are repaid over three or five years, and any debt balances that remain at the end of the repayment period may be forgiven.

You must propose a repayment plan

Your debts are repaid per the terms of a plan proposed to the court and approved by the judge in your case and your creditors. The amount that you’ll pay to satisfy a Chapter 13 bankruptcy plan depends on your level of disposable income as well as the types of balances that you have. Priority debts such as income tax or child support payments must be made in full during the repayment period. Secured debts such as a car or home loans take precedence over unsecured debts such as credit cards or medical bills.

What to expect after the plan goes into effect

Once your payment plan has gone into effect, you are required to abide by it unless a judge says otherwise. If you miss a payment, the plan may be terminated. Assuming you make it to the end of the repayment period, the remaining unsecured debt balances that is eligible for a discharge will likely be eliminated.

Filing for bankruptcy may allow you to reorganize most of your debt balances. However, doing so doesn’t eliminate a secured creditor’s interest in an item or get rid of priority debts. Instead, it gives you time to devise a plan such as selling property or renegotiating an existing repayment plan.