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How to complete a Chapter 13 repayment plan

On Behalf of | Oct 31, 2023 | Bankruptcy

One of the main features of Chapter 13 bankruptcy is the repayment plan. By carrying out this plan, you repay your creditors at least part of what you owe them, helping you avoid selling your property to pay your outstanding amounts.

It takes anywhere from three to five years to complete a Chapter 13 payment plan. While some debtors do not succeed in carrying out their payments, it is possible to avoid pitfalls with careful strategizing.

Budgeted living

After the bankruptcy court confirms the plan, it’s the responsibility of the debtor to ensure its success. This means living within a certain means so that the bankruptcy filer can complete payments to the trustee on a regular basis. The debtor may have to create a budget to make sure he or she does not spend excessively.

Payroll deductions

Anything to streamline the payment process may help finish the plan. A failure to meet payment obligations may lead the court to dismiss the bankruptcy case or convert it to Chapter 7 liquidation. Making payments through payroll deductions is an option since it increases the likelihood of on-time payments.

Avoidance of new debt

The bankruptcy filer can hold on to personal property while making payments. However, the debtor must not acquire new debt without consulting the trustee. Incurring additional debt could financially burden the debtor and jeopardize the fulfillment of the repayment plan.

The hardship discharge

In certain situations, unforeseen circumstances may prevent the debtor from completing the repayment plan. If so, the bankruptcy filer can seek a hardship discharge. This discharge is only available if the debtor cannot exert any ability to complete payments, there is no way to modify the plan, and if creditors have received at least what they would in a Chapter 7 liquidation case.

According to the U.S. Courts site, Chapter 13 bankruptcy filings increased 30.9% from 2021 to 2022, so more Americans see this form of bankruptcy as an option. Knowing how to avoid the derailment of your repayment plan can help you see a Chapter 13 bankruptcy through to the end.