Bankruptcy and the Repayment Plan

Understanding bankruptcy repayment plans first requires an understanding of Chapter 7 and Chapter 13 bankruptcy filings. Chapter 7 bankruptcy is a liquidation bankruptcy. This means that the filing debtor's non-exempt assets will have to be sold or liquidated in order to pay off all creditor claims. In exchange for this action, the debtor's debts, as in the obligation to pay, are dismissed. While all debts can be discharged with Chapter 7, not all liens (as in mortgage notes) will be likewise discharged.

Chapter 13 versus Chapter 7

Chapter 13 is a wage-earner's reorganization plan. The idea here is that a debtor in debt can pay all or most of his/her debt through a bankruptcy repayment plan. The repayment plan can cover a 3-5 year time period, which is usually a comfortable time frame for most individuals and companies. In order to qualify for this plan however, there must be a court-approved plan passed through a Chapter 13 trustee. If after the term of bank repayment plan ends, there is still debt, then this amount will be discharged.

There are some obvious advantages over Chapter 13 than Chapter 7 bankruptcy. Chapter 13 bankruptcy lets debtors prevent foreclosures (at least temporarily). Additionally, the discharge of debts possible with Chapter 13 far outweighs Chapter 7 bankruptcy and the bankruptcy splotch on the credit record stays on for three years less than Chapter 7 bankruptcy. Is it true that one of the major disadvantages of Chapter 13 bankruptcy is that debtor's cannot obtain additional credit without permission of the bankruptcy court? Yes, though this is not a disadvantage solely of a Chapter 13 filing; Chapter 7 as well as Chapters 11 and 12 bankruptcies can also have the same restrictions.

Bankruptcy Repayment Requirements

What are some of the requirements a company or consumer needs before he/she can qualify for bankruptcy repayment plans?

• A Chapter 13 Plan, detailing treatment of debts, liens, assets and liabilities.
• An assurance in the plan that unsecured creditors will receive as much pay off through a Chapter 13 plan as a Chapter 7 plan.
• Provide full payment for any priority claims, such as government charges.
• Provide secured creditors with fair value of their collateral.
• Show feasibility, in that the debtor will be able to make all required payments.
• Show that a debtor will be applying all disposable income to the new plan.
• Propose the plan in Good Faith.

In addition, a Chapter 13 plan is an option for wage earners, as in a self employed individual, a person operating an unincorporated business or an individual consumer. Further requirements include unsecured debts that total less than $336,900 and secured debts less than $1,010,650.

During a bankruptcy repayment plan creditors cannot attempt to collect on the debtor's debt except through the court. The person filing will get to keep his or her property, perhaps other collateral, and can satisfy creditors with less money than the said pay off.