Each Chapter 13 case is unique, but generally, you can expect your case to last three to five years – assuming everything goes as planned. This is because the purpose of the Chapter 13 plan is to repay creditors according to a structured repayment plan, which typically lasts somewhere between three and five years. It’s essential that someone who files for Chapter 13 bankruptcy adheres to their plan because the court may dismiss their case otherwise.
How Does a Chapter 13 Repayment Plan Work?
Chapter 13 repayment plans are structured such that the individual seeking debt relief pays a monthly installment to the bankruptcy trustee for the plan’s duration. The payments made are based on the debtor's disposable income (what's left after subtracting basic living expenses from income), which includes any additional income such as bonuses, tax refunds, and inheritances.
The trustee collects these payments and distributes them to priority creditors first. These entities may include private lenders (especially mortgage lenders) but can also include government entities to whom the Chapter 13 filer may owe back taxes or child support debt.
After priority creditors are satisfied, any remaining balance on the payments is paid to unsecured creditors. These entities typically are typically owed consumer debt such as credit card balances and medical bills.
What Happens If I Miss a Chapter 13 Payment?
If you miss a payment on your Chapter 13 plan, the court may dismiss your case or convert it to a Chapter 7 case. This doesn’t happen instantly, but it can occur a lot quicker than you’d think. This is why you must consult with a bankruptcy lawyer as soon as possible if you anticipate a default on your Chapter 13 plan.
Should you default on your Chapter 13 plan, the bankruptcy trustee can petition the court to “dismiss for material default.” You’ll have a chance to defend against this, but the odds of succeeding may not be on your side. You should consult with an experienced legal professional who can help you discuss your situation with the trustee.
In some cases, trustees are lenient and may offer you an additional month or two to catch up even when you do default; that said, proactively engaging with them can demonstrate good faith for the Chapter 13 process and help you negotiate for a better outcome.
Get Help for Chapter 13 Bankruptcy
At Nguyen Law Group, we understand that the bankruptcy process can be overwhelming and confusing. That’s why our experienced attorney is here to help you each step of the way. We can review your individual situation and provide advice on the best course of action for you.
We guide clients through the complexities of filing a Chapter 13 bankruptcy, which can include developing a repayment plan that works for them and their creditors. We can help you understand the law and your legal obligations so that you can make sense of this complex process.
No matter which stage of the Chapter 13 bankruptcy process you are in, Nguyen Law Group is here to provide support. Contact us today to learn more.
