Bankruptcy happens under a wide variety of circumstances. Different types of bankruptcy filings are designed to address some of these varied circumstances. Chapter 13 bankruptcy is generally designed for those individuals who may have higher amounts of disposable income, but still, face overwhelming debt. Chapter 13 will usually allow the person filing to receive some relief from creditors who may be aggressively trying to collect while allowing the person filing to prevent repossession of assets or foreclosure on a home. Most of the debt obligation will still have to be repaid, but a structured Chapter 13 payment plan can help the debtor manage repayment.

What is a Chapter 13 Bankruptcy Repayment Plan?

With Chapter 13 bankruptcy, the debtor proposes a repayment plan to make installment payments to creditors over a 3 to 5-year time period. During those 3 to 5 years, creditors are legally prevented from initiating or continuing any collection efforts. The proposed repayment plan must be submitted for approval by the bankruptcy court. The plan must outline the payment schedule of what is usually biweekly or monthly fixed payments to the trustee who then disburses payment to the creditors.

What Happens If I Fall Behind On My Chapter 13 Payment Plan?

Sometimes, a debtor may fall behind on payments due under the Chapter 13 repayment plan. A few missed payments may be forgiven, but a series of missed payments will usually carry consequences. If too many payments are missed, the trustee may request that the bankruptcy court dismiss the case because the repayment plan has become unmanageable for the debtor. If the Chapter 13 bankruptcy case ends up being dismissed, creditors will once again be allowed to institute collection efforts. This means that creditors can do things like seek foreclosure or repossession of assets. Additionally, the debtor will continue being responsible for the debt they owe the creditors in addition to interest accruing on the debts.

In some cases, the court will allow for the Chapter 13 bankruptcy case to be converted to a Chapter 7 bankruptcy. This will usually happen if the court sees that the financial state of the debtor has significantly deteriorated. Be aware, however, that the court may convert your case from a Chapter 13 bankruptcy to a Chapter 7 bankruptcy case, but that does not mean you will necessarily qualify for Chapter 7 debt relief. In order to obtain Chapter 7 debt relief, you will need to pass the means test. The means test is used to determine the debtor’s ability or inability to pay some of the debts owed.

When Difficult Financial Times Hit, Know Your Legal Options

Successful filing and navigation of the bankruptcy process can provide you with a new and improved future as you come out of difficult financial times. That being said, bankruptcy is complicated and full of specific legal requirements that must be met. Secure sound legal counsel and know your options. Contact Miami Valley Bankruptcy today. We proudly serve Beavercreek, Jamestown, and Xenia, Ohio.