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Four things to know about a Chapter 13 repayment plan

On Behalf of | Aug 13, 2020 | Chapter 13 Bankruptcy

As opposed to the liquidation involved in Chapter 7 bankruptcy, Chapter 13 filers have enough income to at least partially repay some of their creditors over time. The repayment plan is a prominent feature of Chapter 13 bankruptcy. A person who files for Chapter 13 follows this plan to repay some debts in order to complete bankruptcy. 

As Forbes explains, a Chapter 13 bankruptcy filer has some measure of control over the repayment plan. Successfully completing a repayment plan requires a bankruptcy filer to understand whatever limits the law requires. Here is a look at four things any Chapter 13 filer should know about a repayment plan. 

The filer composes the plan

People who file for Chapter 13 may compose a repayment plan with the assistance of a credit counselor. However, the plan is subject to approval from a bankruptcy judge. Creditors may also object to the plan if they feel it does not adequately compensate them. So if the court requires it, a filer must modify the plan before a judge finally approves it. 

The filer must pay some debts in full

Under Chapter 13 bankruptcy, a judge has the power to discharge some debts, such as credit card debt. However, the law still requires a bankruptcy filer to pay certain debts in full. Child support, alimony, certain taxes and many student loans all qualify as priority debts that a filer must pay off. A Chapter 13 filer will also have to keep making payments on secured debts like mortgages and car loans. 

The payment plan may last a few years

It usually takes from three to five years for a person to complete a Chapter 13 repayment plan. Some individuals may need this amount of time to finish paying off the required debts. However, there are some debtors who successfully complete a plan ahead of schedule. If so, they can get a bankruptcy judge to discharge the bankruptcy sooner. 

No further debts

As The Street explains, as long as a repayment plan is in effect, a bankruptcy filer cannot acquire any further debts. The idea of a repayment plan is to give a bankruptcy filer time to pay off certain debts. Incurring any more debts would be counterproductive to that goal. More debt would just extend the time it would take to complete the repayment plan.