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What you should know about a Chapter 13 repayment plan

Many people who file for personal bankruptcy choose Chapter 13 over Chapter 7 in large part because it can allow them to keep their home and other valuable assets. If your income is high enough, you may not even qualify for Chapter 7, so Chapter 13 is your only choice.

The cornerstone of Chapter 13 bankruptcy is the repayment plan. Instead of liquidating your assets to pay off creditors as you’d do in Chapter 7, you develop a three-to-five year repayment plan for your debts. Typically, the person filing for Chapter 13 works out their repayment plan with their credit counselor during their mandatory credit counseling sessions.

The bankruptcy court has to approve the plan you’ve submitted. Creditors may also be able to weigh in and object to your plan if they believe that they aren’t getting as much of what is owed them as they should. You may be able to pay less than you actually owe on some debts.

Debts fall into three categories. Some have to be paid in full. Others may not. For example, priority debts cannot be exempted and have to be paid off completely. These include things like child support, taxes and student loans.

If you have secured debts, you need to stay current on your payments if you want to keep the item securing the debt (such as your home or a car). If you’ve already missed payments on these things, your repayment plan needs to address how you’ll make up those missed payments.

With unsecured debts, you may be able to work out something with your creditors and the court to pay back only a portion of what you owe. These debts include things like credit card and medical bills.

It’s essential to understand the terms of your Chapter 13 repayment plan and to adhere to it. An experienced bankruptcy attorney can guide you through the process and provide valuable advice and information.

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