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What to know about Chapter 13 repayment plans

On Behalf of | Feb 28, 2022 | Bankruptcy |

Filing for Chapter 13 bankruptcy protection may be an ideal way to keep your car or New Mexico home. As part of a Chapter 13 proceeding, you’ll be required to make monthly payments to your creditors. The following addresses how much you may have to pay, who gets paid and what happens if outstanding balances remain at the conclusion of the repayment period.

How much do you have to pay every month?

The exact amount of your monthly payment largely depends on your disposable income. Disposable income is whatever you have left when the month ends after accounting for necessities such as food, clothing and shelter. It’s worth noting that you’ll have to show that you have some form of regular income to qualify for Chapter 13 protection.

Who gets paid first?

Typically, you first must pay priority debts, such as child support, back taxes and similar obligations. After you take care of those obligations, secured creditors, such as a home or auto lender, must be paid. If there is any money remaining, unsecured creditors, such as a credit card company or medical care provider, will receive payment.

What happens to any remaining balances after the repayment period ends?

The repayment period lasts for three or five years depending on your income. Any unsecured balances that remain after this period ends are typically discharged. However, secured debts generally remain intact, which means that you could still be subject to repossession or foreclosure. In addition, priority debts that remain after your bankruptcy case is discharged will not be reduced or eliminated.

Filing for Chapter 13 bankruptcy may provide many benefits, such as receiving an automatic stay from creditor collection activities. Furthermore, a reorganization bankruptcy may have less of an impact on your credit score compared to a Chapter 7 filing. Finally, a reorganization bankruptcy may allow you to convert negative equity in a home or car into unsecured debt that may be discharged when your repayment period ends.