How Much You Must Pay
Your Chapter 13 plan must pay certain debts in full. These debts, which include child support and alimony, wages you owe to employees, and certain tax obligations, are called “priority debts,” because they’re considered sufficiently important to jump to the head of the bankruptcy repayment line.
In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages on the debts (the amount by which you’ve fallen behind in your payments).
The plan must show that any disposable income you have left after making these required payments will go towards repaying your unsecured debts, such as credit card or medical bills. You don’t have to repay these debts in full (or at all, in some cases). You just have to show that you are putting any remaining income towards their repayment.
How Long Your Plan Will Last
The length of your repayment plan depends on how much you earn and how much you owe. If your average monthly income over the six months prior to the date you filed for bankruptcy is higher than the median income for your state, you’ll have to propose a five-year plan. If your income is lower than the median, you may propose a three-year plan. (Click here for median income figures by state) No matter how much you earn, your plan will end if you repay all of your debts in full, even if you have not yet reached the three- to five-year mark.
If You Can’t Make Plan Payments
If for some reason you cannot finish a Chapter 13 Plan — for example, you lose your job six months into the plan and can’t keep up the payments — the bankruptcy trustee may modify your Plan. The trustee may:
- give you a grace period, if the problem looks temporary
- reduce your total monthly payments, or
- extend the repayment period.
If it’s clear that there’s no way you’ll be able to complete the Plan because of circumstances beyond your control, the court might grant you a discharge of your debts on the basis of hardship. Examples of hardship would be a sudden plant closing in a one-factory town or a debilitating illness. If the bankruptcy court won’t let you modify your Plan or give you a hardship discharge, you can:
- convert to a Chapter 7 bankruptcy, unless you received a Chapter 7 bankruptcy discharge within the last eight years or received a Chapter 13 bankruptcy discharge in a previous Chapter 13 case filed within six years of the date of the second Chapter 13, or
- ask the bankruptcy court to dismiss your Chapter 13 bankruptcy case. You would still owe your debts. However, any payments you made during your plan would be deducted from those debts. On the flip side, your creditors will be able to add on interest they did not charge while your Chapter 13 case was pending.