If you’re experiencing burdensome debt but are skittish about declaring bankruptcy, Chapter 13 is an alternative that may be right for you. Unlike a Chapter 7 bankruptcy — in which many of your debts may be discharged but at the cost of losing much of your property — Chapter 13 allows you to pay off most debts over an extended time period according to a court-approved repayment plan.
Typically, a repayment plan under Chapter 13 lasts for three to five years. The length is determined in part by your average monthly income in the six months prior to filing for bankruptcy. If the amount of your income is less than the median within the state, the repayment plan will likely last for three years. For those with an income greater than the state’s median, the plan will likely last for five years.
For the duration of the Chapter 13 repayment plan, monthly payments are made to the bankruptcy trustee who pays the creditors. Some creditors must be paid in full while others only receive a portion of what they are owed.
Priority debts, which must be paid in full, include federal and state taxes, child support, alimony and back wages owed to employees.
Secured debt must also be fully paid if you wish to retain the property. This type of debt includes mortgages, car loans, or other debts backed by collateral. Importantly, you must ensure that you remain current on the payments for any property you wish to keep, in addition to paying off your debt under the plan.
To get an idea of what your monthly payments would be, combine the amount of your priority debts and arrearages and divide it by the number of months in your repayment plan.
The Chapter 13 plan requires partial repayment of non-priority and unsecured debts. These can consist of medical bills, credit card debt and personal loans — including arrears due on secured loans like mortgages. Monthly payments made on these debts depend upon the amount of disposable income you have after the priority and secured debts are deducted. The minimum amount that you are required to pay for your unsecured debts must be equivalent to what you would have paid the creditors if you had filed for Chapter 7.
Upon the completion of the Chapter 13 repayment plan, the remainder of your unsecured, non-priority debts will be discharged. Your secured and priority debts will continue to be enforceable, but you will usually be in a better position to make on-time payments and to avoid further debt overload.
With offices located in Athens, Douglasville, Gainesville, Lawrenceville, Marietta and Scottdale, Jeff Field & Associates assists clients in the Atlanta metropolitan area with filing Chapter 13 bankruptcies. To schedule an appointment, call 404-381-1278 or contact us online.
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