What People Often Misunderstand About Chapter 13 Repayment Plans

Many people misunderstand the purpose and structure of a Chapter 13 bankruptcy repayment plan. Confusion about this method of debt relief might deter them from filing for bankruptcy because they believe that a Chapter 13 filing will leave them in financial distress for years. The mistaken notion that relief only comes at the end of a three-to-five year repayment schedule make a bad situation worse.  

The most common misconceptions about Chapter 13 repayment plans include the following:

• Creditors control the repayment plan’s terms
• Repayment plans can never be changed 
• Filers must always repay the entirety of their debts
• Payments will consume all residual income after covering basic living expenses

The mandatory repayment plan is one reason why Chapter 13 bankruptcy is not subject to the strict income limitations of a Chapter 7 bankruptcy. While some Chapter 13 filers are subject to repayment plans that leave them with very little flexibility in their monthly budgets, the exact terms depend on the extent of the debt, its nature, the income of the filer, the value of their non-exempt assets and their current household expenses.

Initial terms of the repayment plan are proposed by the filer and their attorney, although they are subject to review by the court-appointed bankruptcy trustee and representatives from their creditors. An experienced lawyer can draft a reasonable repayment plan designed to earn the approval of the relevant parties while leaving enough financial flexibility for the filer to manage their ongoing obligations without undue duress.  

Depending on the situation, the amount allocated to each creditor may be lower than the current monthly minimum payments due. Additionally, filers can petition the courts to modify repayment plans if major changes to their financial circumstances render an existing plan outdated and unsustainable.

Ultimately, filers must complete between three and five years of structured payments to their creditors through the courts before they are eligible to discharge any remaining balances on the debts they owe – but any eligible debts that remain once the schedule has been completed and fully satisfied are discharged. That might leave the petitioner with a clean financial slate much sooner than they could manage on their own.

Those contemplating a Chapter 13 bankruptcy due to their income or non-exempt personal resources should review their finances carefully with a Chapter 13 bankruptcy attorney. They can estimate what the potential filer’s repayment responsibility will be each month and how long the plan might last.

Jeff Field & Associates provides experienced insight into Chapter 13 repayment plans and other aspects of the bankruptcy process to Georgians struggling with insurmountable debt. Prospective Chapter 13 filers can schedule an initial consultation by calling 404-381-1278 or contacting us online. We have offices in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur.