Bankruptcy in New Jersey: How do Chapter 13 repayment plans work?

The crux of Chapter 13 bankruptcy cases, understanding how repayment plans work is vital in helping people determine if it is the right option for them.

Despite having steady income, some people in New Jersey and elsewhere may still struggle with debt. In an effort to regain control of their finances, those who find themselves in situations such as this may consider options, including filing for Chapter 13 bankruptcy. Understanding how the Chapter 13 repayment plan may help people decide if this action is right for their situations and needs.

Paying back debts

Unlike other bankruptcy filing types, which pay down debts through the liquidation of assets or other means, Chapter 13 petitions require that people pay their priority claims in full. Further, they must also repay their creditors at least the value of any property they want to keep that is serving as collateral for secured claims. Filers are required to develop a schedule for the repayment of these debts, applying all their disposable income toward the plan over the course of three or five years.

Approving the plan

In order for Chapter 13 petitions to move forward, filers' repayment plans must be approved by the court. Within 45 days of the meeting of the creditors, a confirmation hearing is held. At that time, a judge determines whether the plan meets the standards and if it is feasible. If people's plans are not deemed acceptable, they may be asked to modify them, or their petitions may be dismissed or converted to Chapter 7 liquidation cases. Although they do not typically appear at the confirmation hearing, creditors have the opportunity to object to the proposed arrangement during the creditors' meeting.

Following through with the plan

Regardless of whether their plans are yet approved or still pending, those seeking Chapter 13 relief are required to start making payments. Their first payments must be received by the court-appointed trustees within 30 days of filing their petitions. Once the plans are approved, the trustees disburse those funds to the appropriate creditors. When certain situations arise that may affect their ability to keep up with their payments, people may be able to have their plans modified after the confirmation.

Discharging remaining debts

After completing all their payments as specified in their Chapter 13 repayment arrangements, some filers may be eligible for a debt discharge. In such cases, provided they meet the applicable requirements, people may be relieved of their obligations for allowable debts. This may include credit card balances, medical bills and some types of personal loans; while certain tax debts, alimony and child support obligations, verdicts of settlements for alcohol or drug-related personal injury claims and other debts are not dischargeable.

Working with a lawyer

Filing for Chapter 13 bankruptcy may provide much-needed relief for people in New Jersey who are dealing with overwhelming debt. However, navigating the complexities alone may prove daunting and add more challenges to an already difficult time. Thus, those considering taking this step toward a fresh financial start may benefit from seeking legal counsel. An attorney may explain their options and help them determine the best course of action given their circumstances, as well as guide them through the process.