The Chapter 13 Bankruptcy plan or sometimes referred to as the proposed plan, repayment plan or reorganization plan is the fundamental basis behind a Chapter 13 Bankruptcy. Unlike a chapter 7 bankruptcy, if you are filing bankruptcy under this chapter the intention is to be able to pay your creditors some or all of what you owe them over time. Filing for bankruptcy using this chapter usually gives the debtor a three to five year period in which to make payments to the creditors.
The bankruptcy attorney and debtor, before they proceed to file for bankruptcy, will generally determine what the debtor’s disposable income is. Disposable income is the amount of income the debtor has left over after allocating for his or her living expenses.
This is where bankruptcy questions can arise. The bankruptcy lawyer, trustee and creditors may not agree as to what is considered reasonable living expenses. Even though bankruptcy law provides us with the means test and we have an IRS standard, bankruptcy attorneys, trustees and creditors still may disagree over this issue. Under this chapter of the bankruptcy law, the debtor needs to apply all or almost all of his or disposable income to the creditors according to the bankruptcy proposed plan.
Similar to a chapter 7 bankruptcy, when filing for bankruptcy under this chapter, the bankruptcy law classifies creditors under two sections. There are the secured creditors and the unsecured creditors. As the bankruptcy attorney will explain to the debtor, secured creditors are essentially credit that was collateralized with something such as a mortgage, car loan, boat loan or a recreational vehicle. Bankruptcy unsecured creditors are generally credit cards or personal loans. This classification is important when filing bankruptcy under a chapter 13 because the plan determines how the two groups are paid.
Secured creditors are usually paid in full but not always when you file for bankruptcy under this chapter. The bankruptcy unsecured creditors will receive a pre determined portion but the unsecured creditors must at least receive what they would have if the file for bankruptcy had been by a chapter 7 bankruptcy.
Although filing for bankruptcy under a chapter 13 may seem more complicated or difficult than a chapter 7, your bankruptcy attorney will be able to answer all your bankruptcy questions. With the help of bankruptcy attorneys, your filing bankruptcy by means of a chapter 13 should be a smooth transaction.