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Are you ready to make a repayment plan for Chapter 13 bankruptcy?

One of the key factors that separate Chapter 13 bankruptcy from Chapter 7 bankruptcy is the obligation for ongoing debt repayment in Chapter 13 bankruptcy. The person filing will need to create and complete a repayment plan, paying toward their debt for three to five years.

You will have to outline how much you intend to pay toward each creditor every month and stick to the plan you propose. What seems on the surface like a simple issue can prove to be quite complex. There is no standard formula for repaying various debts in bankruptcy.

Instead, anyone who files for Chapter 13 bankruptcy will need to create their own proposal for how they repay their creditors during the repayment period. The structure of your repayment plan, your income, your assets and the nature of the debts will all directly influence whether your creditors will approve your proposal and how the courts will respond as well.

More consideration needs to be given to certain debts than others

Some kinds of debts, commonly referred to as priority debts, demand the most consideration in a bankruptcy. It may not be possible to discharge your priority debts. You may also only have moderate leeway when negotiating the amount you pay each month.

There is typically a limit in place for the amount of secured debt that you can continue to carry during Chapter 13 proceedings. Secured debt could include the outstanding balance of the mortgage on your home or the amount you still have to pay on your vehicle. Your payments will need to meet lender requirements to avoid future issues, although bankruptcy does present an opportunity to negotiate new terms for secured loans.

Finally, there is also your unsecured debt to consider. This category of debt often includes medical bills and credit card debt. The courts will expect you to make more of an effort to pay toward past-due child support than toward a credit card balance.

You need to be able to defend your plan based on your financial circumstances

One of the most unnerving and difficult parts of bankruptcy may be the requirement to attend a creditor hearing. During these proceedings, representatives from the companies to which you owe money can ask questions and challenge both the characterization of your current financial circumstances and the circumstances under which you initially incurred the debt.

It is common for people to feel flustered and stressed during this process, which can lead them to make mistakes that impact the success of the process. The less you intend to pay toward individual creditors, the more they may argue with your plan.

Working with an attorney helps ensure that the plan you create is realistic in terms of what the courts and your creditors will approve. Experienced bankruptcy attorneys are familiar with the kinds of terms that common creditors will accept in Chapter 13 proceedings. Additionally, your attorney can argue and speak on your behalf during the creditor meeting, which can make the entire process easier for you.

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