How the Chapter 13 bankruptcy repayment plan works

On Behalf of | Aug 11, 2022 | Chapter 13 Bankruptcy

When you file for Chapter 13 bankruptcy, you will create a repayment plan for your debts. This is a legal tool that enables you to get out of debt. 

The repayment plan works, in some ways, like a short-term consolidation loan. It helps you restructure your debts for one monthly or bimonthly payment based on a few factors. Once the repayment plan is created, it’s submitted to the court for approval. 

Debts to include in the repayment plan

Not all debts are the same or treated equally in a Chapter 13 bankruptcy. Some don’t have to be paid in full. The types of debts to include in this plan are:

  • Priority debts: These must be repaid (with a few exceptions) and include things like back taxes, child support and others.
  • Secured debts: These are backed by collateral and the full repayment of these depends on the specifics of the loan.
  • Unsecured debts: These are the last debts considered and it’s not unusual for some creditors not to receive full repayment. If this happens, the debts will eventually be discharged. 

Creating a repayment plan with the means test

Chapter 13 means test is what determines the structure of your repayment plan. It includes Form 122C-1 and Form 122C-2. The first is used to calculate your monthly income and the second to determine the length of the repayment plan. 

The importance of the repayment plan

It’s important to ensure all debts are included in the repayment plan. The goal of this is to have most of your debts paid off or discharged when the repayment plan is complete. Getting help with creating this plan is smart since you want to ensure you set yourself up for success

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