Creating a Realistic Repayment Plan: Paying Your Creditors

Chapter 13 bankruptcy can be a great way to clear your financial slate, while, at the same time, entitling you to hold on to your precious property even in the most precarious economic situations. To do so, Chapter 13 bankruptcy requires you to construct what is hopefully a realistic financial reorganization plan that allows you to pay back all of your debts through a monthly repayment plan, much like your car note, credit card bill or house note.

In part one of the series “Creating a Realistic Chapter 13 Repayment Plan,” we discussed how an unrealistic Chapter 13 repayment plan (i.e., one that is poorly designed, doesn’t account for unexpected expenses, and one that doesn’t keep your lawyer in the loop, combined with an the debtor’s inability to stay inside a repayment ‘budget’), could lead to Chapter 13 failure. Part two explored the importance of going beyond the bare minimum payments when considering and constructing a worthwhile Chapter 13 repayment plan. In the third part of the series, we’ll review how exactly you pay creditors under a Chapter 13 repayment plan.

Chapter 13 repayment plans are commonly composed of an even number of payments, doled out  over the course of three to five years. Despite this even disbursement of payments, all creditors may not receive the same amount of payment at the same time. Under your Chapter 13 plan, debts are prioritized, with high priority, secured debts such as taxes and mortgage payments getting paid off first; and unsecured, lower priority debts such as credit card bills and payday loans receiving lower priority.

Keep in mind, the repayment plan amount remains the same throughout the Chapter 13 schedule, even when priority creditors are paid off. In these cases, unsecured or lower priority creditors will receive more when higher priority debts are satisfied.

In some cases, when the property secured by the loan is worth less than the debt itself, Chapter 13 installments are split, with some portions covering secured debts and others handling unsecured debt.  For example, when a Chapter 13 bankruptcy case includes the salvaging of a vehicle with a $20,000 debt and the car is only worth $10,000, the other $10,000 portion of the loan is not considered secured.  As a result, debts paid out will be both secured and unsecured. Once the Chapter 13 Bankruptcy is completed, the unsecured portion of the car loan will be discharged.

These types of scenarios are precisely the reason it is essential to pay all portions of your repayment plan on time. If, for example the debtor does not fulfill all of the requirements of the Chapter 13 repayment plan or neglects even one payment during the course of the schedule—even a single payment following the completion of secured, high priority payouts—the debtor is seen to have failed in the Chapter 13 repayments, leaving unpaid these same unsecured debts attached to semi-secured assets. In the case of a car, these missed unsecured payments could lead to forfeiture of the entire asset and means the debtor could lose their vehicle to repossession, even after paying off the secured portion. In these scenarios where your finances change and Chapter 13 payments are in doubt, it is vital to consult with a bankruptcy attorney who can help you plan your next best steps including a possible conversion to a Chapter 7 liquidation bankruptcy.

As a result of these very intricacies and requirements of a financial repayment plan, it is essential to consult with a qualified attorney before entering into Chapter 13 bankruptcy. A qualified bankruptcy attorney is important during the bankruptcy process to help you navigate any uncertain waters and work in your best interests during the duration of your personal bankruptcy. The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to +1-833-627-0115, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.