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When you're struggling to keep up with bills and creditors are calling, it's natural to feel overwhelmed. Chapter 13 bankruptcy offers a path forward by restructuring your debts into a manageable monthly payment plan. Understanding how these repayment plans work can help you make informed decisions about your financial future and take the first step toward stability.
Don't navigate bankruptcy alone. Contact Sisk Law Firm today at (504) 499-5919 or fill out our online contact form to discuss your repayment plan options with an experienced attorney.
What Is a Chapter 13 Repayment Plan?
A Chapter 13 repayment plan is a court-approved agreement that allows you to pay back all or a portion of your debts over three to five years. Unlike Chapter 7 bankruptcy, which involves liquidating assets, Chapter 13 lets you keep your property while catching up on missed payments and satisfying your creditors through regular monthly installments.
The plan consolidates your debts into one affordable payment based on your income, expenses, and the types of debts you owe. This approach provides breathing room from collection actions while you work toward financial recovery. For many families in Jefferson, Lafourche, St. Tammany, and Orleans Parishes, this structure offers a realistic way to protect their homes and vehicles while addressing debt.
How Long Will Your Repayment Plan Last?
The length of your Chapter 13 repayment plan depends primarily on your household income compared to the median income in Louisiana. If your income falls below the state median, your plan typically lasts three years. If your income exceeds the median, you'll usually commit to a five-year plan.
Your attorney can help determine which timeframe applies to your situation. The court may also consider other factors, such as the types of debts you're repaying and whether a longer plan better serves your creditors. While a longer plan means more time in bankruptcy, it can also reduce your monthly payment amount and make the process more manageable for your budget.
What Debts Must Be Paid in Full?
Not all debts are treated equally in Chapter 13 bankruptcy. Understanding which obligations require full repayment helps you set realistic expectations for your plan.
Priority debts typically must be paid in full during your repayment plan and include:
- Recent income taxes (usually from the past three years)
- Child support and alimony arrears
- Certain tax penalties and fees
- Wages owed to employees if you're a business owner
These debts receive priority status because they involve obligations to government entities, family support, or employee protections. Your monthly payment must be sufficient to pay these debts in full over the life of your plan. Failure to fully repay priority debts can result in your case being dismissed.
Secured debts like mortgage and car loan arrears also require special attention, though they're treated differently than priority debts. If you want to keep your home or vehicle, you'll need to catch up on missed payments through your plan while continuing to make regular ongoing payments.
How Are Your Monthly Payments Calculated?
Your monthly Chapter 13 payment is based on your disposable income—the amount left over after you pay necessary living expenses. The court uses standardized expense allowances for many categories, though actual expenses may be considered in some cases.
To calculate disposable income, the court examines your total household income from all sources, including wages, benefits, rental income, and support payments. Then, allowable expenses are subtracted, such as housing costs, utilities, food, transportation, healthcare, and other necessities. The remaining amount represents what you can afford to pay creditors each month.
Your payment must also be sufficient to provide creditors with at least as much as they would have received in a Chapter 7 bankruptcy liquidation. This is called the "best interest of creditors" test. Additionally, if you have nonexempt assets—property that wouldn't be protected in Chapter 7—your plan payments must equal or exceed the value of those assets over the plan's duration.
What Happens to Unsecured Debts?
Unsecured debts like credit cards, medical bills, and personal loans are typically paid last in your repayment plan. Unlike priority debts, these don't need to be repaid in full. The amount unsecured creditors receive depends on your disposable income and how much is left after paying priority and secured debt obligations.
In many Chapter 13 cases, unsecured creditors receive only a percentage of what they're owed—sometimes as little as 0% to 10%, though percentages vary widely based on individual circumstances. Whatever balance remains on these debts after you complete your plan is typically discharged, meaning you're no longer legally obligated to pay them.
This feature makes Chapter 13 particularly beneficial for people with significant unsecured debt. You gain protection from collection actions and lawsuits while paying what you can afford, and the remaining balances are eliminated when you successfully complete your plan.
Can Your Repayment Plan Be Modified?
Life circumstances change, and Chapter 13 acknowledges this reality. If you experience a significant change in income or expenses during your bankruptcy, you may be able to modify your repayment plan.
Common reasons for plan modifications include:
- Job loss or reduction in work hours
- Serious illness or injury affecting income
- Unexpected increases in necessary expenses
- Increase in income that allows higher payments
To modify your plan, you'll need to file a motion with the bankruptcy court and demonstrate that the change in circumstances is substantial and not temporary. The court will review your current financial situation and determine whether a modification is appropriate. Your creditors have the right to object to proposed modifications, so working with an experienced attorney is essential to navigating this process.
Keep in mind that modifications aren't automatic, and continuing to make your current plan payments while the modification is pending is important to avoid default.
What Happens If You Miss Payments?
Missing payments under your Chapter 13 plan can have serious consequences. The bankruptcy trustee or your creditors may file a motion to dismiss your case, which would end your bankruptcy protection and allow creditors to resume collection activities.
However, temporary financial setbacks don't necessarily mean your case will be dismissed. If you miss a payment due to a one-time emergency or brief income interruption, you may be able to catch up without jeopardizing your case. Communication is key—contact your attorney immediately if you anticipate difficulty making a payment.
In some situations, the court may allow you to cure the default by making up missed payments over time. Alternatively, you might be able to convert your case to a Chapter 7 bankruptcy if your circumstances have changed significantly. The important thing is addressing payment issues promptly rather than ignoring them and hoping they'll resolve themselves.
Understanding Your Plan Confirmation Hearing
After you file for Chapter 13 bankruptcy, the court schedules a confirmation hearing where a judge reviews your proposed repayment plan. This hearing typically occurs several weeks after your initial filing and is a critical step in the bankruptcy process.
At the confirmation hearing, the judge determines whether your plan meets legal requirements and treats creditors fairly. Creditors have the right to object to your plan if they believe it doesn't comply with bankruptcy law or doesn't propose adequate payments. Your attorney will represent you at this hearing and address any objections raised.
If the judge confirms your plan, it becomes a binding court order that you and your creditors must follow. If the plan isn't confirmed, you'll need to revise it and address the court's concerns. Most plans are eventually confirmed, though negotiations and revisions may be necessary.
Take Control of Your Financial Future Today
Understanding your Chapter 13 repayment plan options is the first step toward regaining financial stability. While the process may seem complex, you don't have to figure it out alone. Sisk Law Firm has helped countless families throughout Jefferson, Lafourche, St. Tammany, and Orleans Parishes find relief through bankruptcy.
Call (504) 499-5919 or complete our online contact form to schedule a consultation. We'll review your situation, explain your options, and help you develop a repayment plan that works for your family's needs.