Personal bankruptcy protections are designed to help struggling consumers get back on their feet and to help them with the weight of crushing debt. One type of personal bankruptcy protection is Chapter 13 bankruptcy which is a reorganization bankruptcy option.
As a reorganization bankruptcy option, Chapter 13 bankruptcy allows the filing party to reorganize their debt into a repayment plan and repay their debt over a longer, and more manageable, period of time. A repayment plan must be filed either with the bankruptcy filing or within 15 days from when the bankruptcy petition is filed unless the bankruptcy court grants an extension of the requirement. The repayment plan must be submitted to the bankruptcy court for its approval.
The repayment plan will be paid in fixed amounts to the bankruptcy trustee assigned to the filing party’s bankruptcy case. Payments to the bankruptcy trustee must be made on a regular basis. The bankruptcy trustee then distributes the funds to creditors according to the repayment plan. There are three types of creditor claims that will be included in the repayment plan and creditors typically receive less than the full amount of their claim. Creditor claims can be classified as priority, secured and unsecured. It is important for the filing party to understand these different categories and how they impact their repayment plan.
At the completion of the repayment plan, the filing party will receive a debt discharge which can help them with a fresh financial start. Struggling with debts the filing party cannot pay can be overwhelming which is why understanding how a repayment plan through Chapter 13 bankruptcy may be able to help address those concerns is valuable information for struggling consumers to have.