For people who are in financial duress but still hold a steady source of income, Chapter 13 bankruptcy is often the best form of debt relief. In a Chapter 13 bankruptcy filing, all the debts are combined, and the debtor makes regular payments to the bankruptcy case trustee to clear all debts. This method is known as the repayment plan and covers repayment of priority, secured and unsecured debts.
As many people in South Florida may know, a repayment plan needs to be submitted either at the time of filing the Chapter 13 bankruptcy petition or within a maximum of 15 days after filing the petition. This plan contains details of the fortnightly or monthly payments that the debtor would make to the trustee who would, in turn, distribute the money among the creditors per the terms of the repayment plan.
Priority debts, as the name suggests, get priority among the three types of debts mentioned earlier. These debts include most taxes and the cost of the bankruptcy procedure and these are paid in full. However, if a bankruptcy filer can prove that all of his disposable income is being used for domestic support obligations, the priority creditors may agree to a different set of terms for the repayment.
In the case of secured debts, the repayment plan must have provisions for paying the secured creditor that sum of money, which is equal to the value of the collateral that was pledged at the time of borrowing, if that debtor wishes to retain the collateral. However, under certain circumstances, a Chapter 13 bankruptcy filer may have to repay the entire loan amount and not just the value of the collateral.
In the case of unsecured debts, a debtor is not required to make regular payments as long as it is evident that all disposable income is being paid to those unsecured creditors over an applicable commitment period. In addition, the laws ensure that the unsecured creditors receive at least that sum of money that they would have received if the debtor filed for liquidation under Chapter 7 of the Bankruptcy Code.