How does a Chapter 13 Bankruptcy work?

Under a chapter 13 plan, a debtor is agreeing to pay back a specific amount of their debts, arrearages and other balances owed, over a period of 36 to 60 months in the future. This is known as a plan payment.The duration of the plan is based on debtor’s income and necessities under a plan. Typically, an individual who is above the mean income under the U.S. Trustee and Internal Revenue Guidelines, would have to submit to a 60 month plan.

An individual under that mean income amount would be only required to submit at 36month plan. However, a person bound to a 36 month plan could request a plan over 36 months up to 60 months to maintain lower plan payments.

Plans CAN NOT exceed 60 month. The total arrerages on any property the debtor is attempting to keep in their Chapter 13 bankruptcy needs to be fulfilled within the 36 - 60 month period. It is important for Chapter 13 debtors to maintain a regular employment and regular source of income.

This allows for regular payments to be made under the plan and ultimately provides for a higher chance of completion of the bankruptcy plan of reorganization.

Upon completion of the plan of reorganization, any remaining dischargeable debt, such as unsecured debt of credit cards, is eliminated. Remaining balances on items that are not dischargeable or based on fraud, survive the chapter 13 plan and discharge. This include outstanding tax balances, remaining student loan balances and other debts of that type.