The repayment plan is the cornerstone of a Chapter 13 bankruptcy. It provides a structured approach to debt repayment, outlining the amount you need to pay to the trustee and how often. It also specifies how the trustee will distribute the payments to the creditors.
These plans typically last 3-5 years, depending on your income compared to Ohio’s current median income. It should address three main types of claims.
Secured debts
Secured debts are those tied to a specific property, such as your home or car. If you don’t pay these debts, the creditor can take back the property. In a Chapter 13 plan, you can address them in two ways:
- Continue making payments to keep the property
- Return the property to the creditor
In some cases, you might be able to reduce the amount owed on certain secured debts by requesting a “cram-down.” This is when the court reduces the secured portion of your debt to the current value of the collateral. This can be particularly useful for debts in which the value of the collateral has decreased, such as car loans where the vehicle’s value has depreciated.
However, cram-down is not available for some secured debts, such as mortgages on a primary residence. Make sure to consult with an attorney on which debts may be eligible for cram-down in your specific situation.
Priority debts
Priority debts are those that bankruptcy law considers especially important. These typically include most taxes, as well as child support, alimony and bankruptcy filing fees. Chapter 13 plans usually require full payment of priority debts unless the creditor agrees to different terms.
Unsecured debts
Unsecured debts are those not backed by collateral. These include:
- Credit card balances
- Medical bills
- Personal loans
They’re typically at the bottom of the payment priority list. The amount you’ll pay towards these debts depends on your “disposable income” – the money left over after paying for necessary living expenses.
Create a repayment plan that best fits your situation
Dealing with debt can be overwhelming, and creating a Chapter 13 repayment plan might seem daunting. However, you don’t have to figure this out by yourself. An attorney can help you develop a repayment plan that not only meets legal requirements but also aligns with your personal financial situation.