Are you struggling to pay your bills? If so, you are far from alone. Texans consistently cite debt and other financial problems as the top source of stress in their lives. Personal bankruptcy is a legal tool available to people and families overburdened by high levels of debt. Chapter 13 bankruptcy protection is one of the two primary consumer bankruptcy options.
As described by the United States Courts, Chapter 13 bankruptcy protection leads to a repayment plan that “enables individuals with regular income to develop a plan to repay all or part of their debts.” In this article, our Frisco Chapter 13 bankruptcy lawyer explains the key things to know about Chapter 13 repayment plans in Texas.
Understanding Chapter 13 Repayment Plans
Chapter 13 bankruptcy protection is also often known as wage earner's bankruptcy because the process exists to help people who have regular income resolve their overly burdensome debt in a reasonable manner. Here are four key things to understand about how Chapter 13 repayment plans work in Texas:
- A Repayment Plan is Part of a Chapter 13 Filing: When you file for Chapter 13 bankruptcy protection, the ultimate goal of the process is to get onto a repayment plan. Your repayment plan must be approved by the bankruptcy court. Approval requires proving that the plan reasonably protects the interests of all parties given the nature of your debt and your current financial circumstances.
- The Terms of Your Debt Will Change: A Chapter 13 repayment plan invariably results in some modifications to the specific terms of the petitioner's outstanding debt. You may be eligible to get fees waiver, interest eliminated, or even forgiveness of principal.
- Your Debts Will Be Categorized (Priority, Secured, Unsecured): As part of your Chapter 13 repayment plan, all of your debts must be categorized. There are three general categories. The first, priority debts, are things like child support that cannot be reduced in bankruptcy and recent taxes. The second category, secured debt, includes everything attached to an asset. The final category, unsecured debt, includes things such as medical bills and credit card payments.
- A Specific Payment Structure Will Be Developed: Every Chapter 13 repayment plan is different. A finalized Chapter 13 repayment plan will be specific. It will clearly state how much is due and when/where payments must be made. An experienced Texas Chapter 13 bankruptcy attorney can help you work towards a repayment plan that is truly in your best interests.
- Your Repayment Plan Will Last for Three to Five Years: As a general rule, a Chapter 13 repayment plan will allow for the repayment of debts over a period of three to five years. Indeed, bankruptcy law holds that five years is the maximum duration of a Chapter 13 repayment plan. Once you satisfy your plan (whether 3, 4, or 5 years), your bankruptcy will be finalized, you will receive a discharge and you will be able to move forward with a fresh start.
Why File for Chapter 13 Bankruptcy Instead of Chapter 7 Bankruptcy?
Whereas Chapter 13 bankruptcy leads to a repayment plan, Chapter 7 bankruptcy leads to the discharge of many (or all) of the petitioner's unsecured nonpriority debts. The American Bankruptcy Institute (ABI) reports that 31% of all personal bankruptcy petitioners in Texas in 2021 filed for Chapter 13 bankruptcy protection. Twice as many sought Chapter 7 bankruptcy protection. You may be wondering what are the benefits of Chapter 13 over Chapter 7. Here are some of the most common reasons why people opt for a Chapter 13 repayment plan instead of Chapter 7 liquidation bankruptcy:
- Eligibility: You must meet the means test to file for Chapter 7. If your income is too high for Chapter 7, Chapter 13 may be the best option.
- Foreclosure: Chapter 13 bankruptcy may be a better option to save your home from foreclosure than Chapter 7 because you have the opportunity to repay the mortgage arrears over a period of 3-5 years.
- Co-Debtors: If you have co-debtors, you may be able to more effectively protect them through the Chapter 13 bankruptcy process.
What Happens if You Cannot Fulfill the Terms of a Chapter 13 Repayment Plan?
Even the best laid plans in life do not always turn out exactly as expected. A Chapter 13 bankruptcy repayment should be structured in a manner that will allow you to keep up with your payments without facing serious financial hardship. Of course, things can and do change. If you are at risk of falling behind on your Chapter 13 repayment plan (defaulting), it is imperative that you take a proactive approach. If you simply stop making payments before the end of your repayment plan, your bankruptcy case is likely to be “dismissed”—meaning your debts will not be discharged and you will be back into a financially unsustainable position.
There is some good news: You have a lot of options available if you address the matter proactively. You may be eligible to have your plan modified. The sooner you take action, the better position you will be in to get a successful outcome. An experienced Frisco, TX Chapter 13 bankruptcy attorney can help you with modifications and reinstatements.
Contact Our Frisco, TX Chapter 13 Bankruptcy Attorney Today
At The Page Law Firm, our Frisco Chapter 13 bankruptcy lawyer is committed to helping people and families find the best way out of debt. If you have any questions about Chapter 13 repayment plans, we are here to get you reliable answers. Get in touch with us by phone at (214) 618-2101 or send us a direct message to set up your complimentary, confidential initial strategy session. From our Frisco law office, we provide Chapter 13 bankruptcy representation throughout Collin and Denton counties.