Understanding the repayment plan under Chapter 13 bankruptcy

Bankruptcy filing means you concluded that you need help getting rid of some or all of your debt. With credit card accessibility climbing and the average income remaining stagnant, it is not a surprise that consumers find themselves deep in debt.

Under Chapter 13 bankruptcy, you agree to pay back a portion of your debt over three to five years. The payment plan calculation depends on a few factors. Explore some of the details of how a trustee establishes a monthly payment and what happens after.

Your household income

Filing for bankruptcy may happen whether you are single or married. One spouse may file without the other filing. While not ideal, filing bankruptcy without your spouse may make sense if the non-filing spouse does not have much debt in his or her name. Regardless, a payment plan under Chapter 13 relies on household income. Thus, if single, it goes off your income. If married, however, the other spouse’s income counts.

Income dictates payment plan timing

Under the state’s Current Monthly Income (CMI) table, you can see where your income falls based on household size. The court considers the last three months of income in coming up with an average. Once it does, it consults the CMI chart to see how much you can afford to repay to creditors based on household size. If your income is over what the table indicates for your family size, you may fall under a five-year repayment plan. If your income is less, you may only need to pay for three years.

Finishing a Chapter 13 payment plan

What happens after a Chapter 13 payment plan is complete? Once you make your last payment, the court sets a date for a final discharge hearing. After concluding that you fulfilled your payment plan as devised, and barring creditor objections, the court should discharge the rest of your debt.

It is not ideal to get too far into debt, but it happens. If Chapter 13 bankruptcy may work, getting help sooner rather than later is ideal.