If you’re seeking an effective way to reorganize your debts in a timely manner, it may be in your best interest to file for Chapter 13 bankruptcy. In addition to obtaining debt relief, it may be possible to retain ownership of your New York home or other tangible assets. Let’s take a look at what you can expect from a Chapter 13 debt reorganization plan.
What types of debt do you have?
Debt balances can be classified as priority, secured or unsecured. Priority balances include back taxes owed, ongoing child support payments and costs related to filing for Chapter 13 protection. Secured debts include auto loans, mortgages or other obligations that are backed by collateral.
Unsecured debts include credit card balances, medical bills or other loans that were obtained with nothing more than a promise to pay the lender back in a timely manner. Generally speaking, unsecured creditors are paid last, and any unpaid portion of such a debt is forgiven at the end of the repayment period.
How the terms of a repayment plan are created
A means test is used to estimate the length of your repayment plan. If your monthly income is lower than the state median, you will likely be required to make payments for three years. If your income is higher than the state median, you’ll likely make plan payments for five years.
The amount of each payment depends primarily on the kind of debts that you have and how much disposable income you have to pay them with. State law, IRS guidelines and the bankruptcy court itself will all play a role in determining how much you can afford to give to creditors each month.
If you’re seeking protection from creditors, it may be in your best interest to speak with an attorney. Legal counsel may talk more about how to file for bankruptcy and the potential benefits of doing so. Your attorney may also be able to ensure that creditors abide by the stay that will likely be in place throughout the proceeding.