The Chapter 13 plan essentially puts you on an allowance for a period of time, to help you catch up on your bills, start rebuilding your credit score and get on with your life free of creditor harassment.
A Chapter 13 bankruptcy is sometimes referred to as the “wage-earner plan” or “repayment plan bankruptcy.”
Just like your petition was voluntary, you also have the first chance to put together a Chapter 13 plan. Depending on your income, the plan period may be either three or five years; generally speaking, a higher income means a longer plan, because the law assumes that you have more ability to pay back your debts.
At a minimum, the plan must account for current payments on secured debts, the total arrearage on secured debts and the trustee’s fee. Bear in mind that the “total arrearage” is not necessarily the amount the moneylender demands that you pay.
The plan must also be feasible. If you are behind on your mortgage, you must demonstrate the ability to pay off the entire amount within the plan period. It is possible to go back and modify the plan later, should your income or expenses change significantly.
Creditors are prohibited from contacting you for the entire time that your bankruptcy is pending. As a practical matter, moneylenders often communicate to your attorney, who then forwards the information to you. While cumbersome, this process gives your attorney the opportunity to negotiate with moneylenders right from the start. It also gives you the freedom to check your mail without that sinking feeling that there will be more bills in the box than you can possibly pay.
A bankruptcy plan is a fairly complicated document that can put you back on the right path. To take the first step towards financial freedom, contact our office.