When you file for Chapter 13 bankruptcy in Maryland, you’ll have to come up with a repayment plan so your creditors get a fair amount under the law—but what, exactly, goes into a repayment plan, and how is it structured?
What is a Chapter 13 Repayment Plan?
A Chapter 13 repayment plan is a detailed plan you propose to the U.S. Bankruptcy Court. Your plan will last between 3 and 5 years, and during that time, you’ll be able to pay down your debts to your creditors.
Do You Have to Repay Your Creditors the Full Amount You Owe?
You don’t always have to repay your creditors the full amount due on your accounts when you file a wage earner’s plan (that’s the other name for this type of debt relief). Sometimes the courts (and more specifically, the trustee in your case) will agree to allow you to pay less than the total balance you owe to specific creditors.
Whether you must pay your debts in full or in part depends on how much disposable income you have.
What is Disposable Income?
It sounds crazy to call income “disposable,” but it doesn’t mean that you have money to burn. The term disposable income refers to the amount of money you have left after taxes come out, that you can use however you see fit. Let’s say you have an annual income of $100,000 and you pay tax at a rate of 25 percent. The government will take 25 percent of your money in taxes ($25,000), so here’s what you’re left with:
$100,000 – $25,000 = $75,000
Even if that money is already “spoken for,” it’s considered disposable income because you’re free to spend it however you need to.
What’s in a Chapter 13 Repayment Plan?
You’ll have to name all your debts: Priority debts, secured debts, and non-priority unsecured debts.
Priority debts are those that must be paid in full through your Chapter 13 repayment plan. They include things like child support, some taxes, and alimony.
Secured debt—debt that’s backed up by collateral, like a house or car—have to be addressed in your Chapter 13 repayment plan. If you want to give up the collateral to make good on your debt, you can most likely do so in your repayment plan. (Check with your bankruptcy attorney to be sure, though.)
Non-Priority Unsecured Debts
Nearly everything left over after priority debts and secured debts will be considered non-priority unsecured debts. These debts typically include credit cards, medical bills, and personal loans that aren’t secured by collateral.
What Happens After You Put Together Your Chapter 13 Repayment Plan?
Your attorney will submit your plan to the trustee in your case. The trustee will review it and make sure it’s fair to you and your creditors—and if it’s approved, you’ll begin making payments.
Your plan will last between 3 and 5 years (that’s how long the entire Chapter 13 discharge process will take), and once you’ve made your last payment, you’re free and clear.
Do You Need to Talk to an Attorney About Filing a Chapter 13 Repayment Plan?
From Baltimore to D.C. to NoVa, we’ve helped people get the debt relief they so desperately needed through Chapter 13 bankruptcy—and we may be able to help you, too.
Call us at 301-933-2595 for a free bankruptcy consultation in Maryland, D.C., or Virginia. We’ll analyze your situation and help you understand your options today.