A bankruptcy payment plan is the foundation of Chapter 13 bankruptcy. In this type of bankruptcy, the debtor's debts are organized by importance. Then, they are reorganized into a repayment plan. Rather than discharging this debt (which means the debtor no longer has to pay for it,) a reorganization plan allows for the payment terms to be easier or more accommodating to the debtor. The goal is for the consumer to repay as much as possible of the debt to the creditors.
Debt Organization
One of the most important parts of the Chapter 13 bankruptcy plan is the structuring of the debt. Most secured debts, such as a home loan, will be repaid in full or reaffirmed in the bankruptcy plan. Some types of unsecured debts will not be paid in full. Here's a closer look.
- Priority Claims: Some claims are afforded a priority claim according to bankruptcy law. This means the claim must be paid in full before other debts. If you owe taxes to a government, for example, this claim is repaid in full and before other debts.
- Secured Claims: Secured claims are those backed by collateral. The creditor has the right to take back property in these claims, unless payment is made. These types of claims may be reaffirmed, which means you agree to keep making payments on them as originally agreed. In most cases, if you want to keep the asset, secured claims are paid in full in bankruptcy.
- Unsecured Claims: These have no collateral backing them. Credit cards are a good example of these types of claims. In the bankruptcy plan, it is likely that only a fraction of the costs of these will be repaid.
The Chapter 13 bankruptcy plan lists which debts are to be repaid and in which order they will be repaid over a three to five year repayment plan. The bankruptcy trustee will collect monthly payments from the debtor and repay the debt according to the plan as outlined. Keep in mind that the trustee must first approve the plan before it can be put into effect.
Using an Attorney
Because of the intricate details of a Chapter 13 plan, it is best to hire an attorney to help you to set up the repayment plan. The attorney can help you to save property and help you to come up with a working budget that makes the repayment plan possible. Court approval for the plan is necessary and an attorney can help make sure that happens.
