Instead of liquidating assets, Chapter 13 bankruptcy requires you to make monthly payments for three to five years before you can receive a discharge. The court will want to make sure you have enough regular income to make reasonable payments toward your debts. If you don’t have enough income, you may have to file for Chapter 7 bankruptcy instead of Chapter 13. The following is some additional information about how repayment plans work in a Chapter 13 case.
Reorganization of Your Debts
The bankruptcy trustee will categorize your debts as priority debts, secured debts, or unsecured debts. Priority debts must be paid in full during a repayment plan. These often include tax debts, child support, and other nondischargeable debts. For secured debts, the creditor must receive at least the value of the collateral if you want to keep the collateral (e.g., your car or house). Your plan should include all secured debt arrears, and you may be able to keep making regular payments on the original loan schedule as long as all arrears are addressed. Unsecured debts are the lowest priority and are often discharged instead of creditors receiving funds from your repayment plan.
A bankruptcy debtor will make a single payment to the court each month, and the trustee will distribute the funds to creditors based on their priority. If everything goes as planned, at the end of your repayment period, all your priority debts and secured arrears should be satisfied. The court can then discharge any remaining qualified debts, which are often unsecured debts.
Negotiating a Repayment Plan
Repayment plans should be reasonable based on your financial situation, including your income and expenses. You will need to submit a proposed repayment plan either with your petition or within 15 days of your petition. It’s important that you have an experienced bankruptcy attorney helping you determine a feasible plan that meets the required standards under the U.S. Bankruptcy Code.
The bankruptcy court will hold a confirmation hearing during which the judge will decide whether to confirm or reject your proposed plan. This hearing will happen within 45 days of your meeting of creditors. The bankruptcy trustee will have the opportunity to object to part or all of your proposed plan at the hearing. Additionally, your creditors will receive notice of the hearing and have the opportunity to appear in court and object to the confirmation, though this is rare.
Some reasons a trustee may object to your proposed repayment plan include:
● Not all of your disposable income will go to creditors
● Your income is not enough to cover the proposed payments
● Your proposal does not address all debts you are required to pay
● The term of your proposed plan is too long or too short
● You failed to provide financial documents to support your proposal
● You did not submit the proposal in good faith
● The plan does not comply with all requirements under bankruptcy law
When a trustee submits written objections to the court, you have a short period of time to respond to the objections. If you fail to respond, the court will likely reject your proposed plan. Your response should include reasons supporting the confirmation of your proposed repayment plan. You also have an opportunity to fix any errors that led to the objection, file an amended proposal, or negotiate terms of the repayment plan with the trustee. It’s critical to have a skilled bankruptcy attorney who knows how to negotiate to ensure your repayment plan is reasonable for your circumstances.
If for some reason, an agreement regarding a repayment plan cannot be reached, you will have the opportunity to convert your case to a Chapter 7 bankruptcy. You should discuss whether this option makes sense with your attorney.
Completing the Repayment Plan
Once the court confirms a repayment plan, it will be up to you to make the plan succeed. Making your payments is necessary for a successful Chapter 13 discharge. If you learn you cannot afford your payments at any point, you should call your attorney right away. Our team can work to modify your plan or convert your case to Chapter 7 if necessary.
While you don’t have to make payments to each individual creditor, making the required payments to the court is crucial. Having a careful budget that works around the payments is important for any Chapter 13 debtor. Once you complete your final payment, the court can discharge remaining debts.
Contact Our Trusted Minnesota Bankruptcy Attorneys for More Information
At the law firm of Kain & Scott, our Minnesota bankruptcy lawyers represent clients during each step of the Chapter 13 process. Our goal is for you to successfully complete your repayment plan and receive a discharge so that you can start fresh. Please call 800-551-3292 or contact us online for a free case evaluation today.
