[pullquote1]Chapter 13 bankruptcy generally lets you keep many (or all) of your assets and requires you to repay some of your debts over a 3-5 year period. At the end of your repayment period, most remaining debt is wiped out. But, how do you determine how much you have to pay and for how long?[/pullquote1]

Chapter 13 repayment plan: what is it?

Your Chapter 13 repayment plan is a document that describes in detail (1) how you plan to repay your debts and (2) how much you propose to pay.

You submit your plan to the bankruptcy court for approval. The plan must be “confirmed” by the court. The court will review your plan to be sure (1) it complies with Chapter 13 requirements and (2) is feasible considering your economic situation.

Your plan must explain how you propose to satisfy the following requirements.

Your Chapter 13 repayment plan: which debts are included?

Priority debts.  Certain debts are paid first in Chapter 13 bankruptcy. These are called “priority debts” and include wages you owe to employees, child support and alimony, and some tax debts.

Secured debts. In addition to paying priority debts, your plan must allow you to make regular payments on secured debts for property you want to keep.  For many people, these would include  car loans  and mortgages. The plan must also allow you to pay over time any past due amounts on these secured debts.

Unsecured debts. The plan must show that any “disposable income” you have left over after paying priority and secured debts will go towards paying some of your unsecured debts.  Your disposable income is calculated using a formula set by the bankruptcy court and takes into account your income, expenses, and non-exempt assets.
If you have a lot of non-exempt assets that could be sold to pay creditors if you (hypothetically) filed a Chapter 7 bankruptcy, then the amount you must pay towards your unsecured debt will be higher.

Does this mean I get to keep all my secured-debt property if I file Chapter 13?

Usually you can, but not always.  If you have multiple vehicles, recreational equipment, or  luxury items financed by secured loans, your proposed payment plan might be challenged by your creditors or bankruptcy trustee if you propose to keep making payments on the luxury items.

How long does the Chapter 13 repayment plan last?

The length of your repayment plan depends on a number of factors, including how much you earn and the amount of your debts.

While every plan is different, the general guideline is as follows:

      • If your average monthly income over the six months prior to your bankruptcy filing date is more than the median income for a household of your household’s size in your state, you will usually need to propose a five-year plan.
      • If your income is lower than this median figure, you may propose a three-year plan.
      • Under some circumstances, you plan might be shorter than longer than the “average” plan.

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