Pennsylvania residents having difficulty paying their debts have several options to manage them. One of those involves filing for Chapter 13 bankruptcy. Under this type of bankruptcy, the court approves a repayment plan to help you discharge your debts over a three-to-five-year period.
Chapter 13 allows you to keep large assets
The advantage of Chapter 13 bankruptcy is you don’t have to give up your house, vehicles and other significant assets to pay for your debts. Factors determining your plan include household income and essential expenses like food, utilities, taxes and healthcare needs. If the court approves your plan and you make the payments according to schedule, most or all of your remaining debts will be discharged at the end of the repayment period. You must file the repayment plan within 14 days of submitting your bankruptcy petition.
Your repayment plan does not treat debts equally. Your bills fall into three categories: priority debts, secured debts and unsecured debts. Priority debts are those that must be paid during the repayment period. These include back taxes and applicable alimony or child-support payments. Secured debts include auto loans and home mortgages. Depending on the plan, you will either repay the value of the collateral or the entire loan. Unsecured debts include credit cards and medical bills. These have the lowest priority, so these creditors may only receive partial repayment.
Chapter 13 plans can be complicated
Creating a Chapter 13 repayment plan takes time and consideration. Knowing how these plans work will help you understand how your repayment plan will be structured. Going through the Chapter 13 means test, which determines where your average monthly income falls when compared with others in Pennsylvania, determines the length of your repayment plan.
Following through on your repayment plan is essential, as missing payments could cause the court to cancel your plan and the debt forgiveness Chapter 13 affords. Even though you will work with a bankruptcy trustee appointed by the court, it’s a good idea to put your plan payments on autopay, so you don’t forget to make them.