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What to Know About Chapter 13 Repayment
24 April 2020
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Many American struggle with debt, and as they try to get out of it, more and more bills only pull them under. Luckily, bankruptcy is a legal and realistic way to remove or restructure much of your debt. If you are ready to start improving your financial situation, keep reading to learn more about the Chapter 13 repayment period.
How Long Does the Repayment Period Last?
The repayment plan for Chapter 13 bankruptcy can last three to five years . In most cases, you can only propose a three-year repayment plan if your income is below the state median. Naturally, however, the shorter the repayment plan, the higher the monthly payment, and people with a lower income may not have enough to pay this high payment.
For this reason, many people still choose to take the full five years for their repayment plan. If you have the extra money, you may be able to get a repayment plan shorter than three years. You will only qualify for this, however, if you can and will repay the full amount you owe on unsecured debts.
How Much Do You Have to Repay?
Depending on your situation, the amount of money you repay can significantly vary. While some people choose to repay the full debt, others end up paying zero percent of unsecured debts. The leading factor that determines how much you pay is the "best interest of the creditors." In other words, it means the creditors won't get less because you filed for Chapter 13 instead of Chapter 7.
In Chapter 7, unsecured creditors get some money back after your nonexempt property is sold (excluding property you need to work and live). In Chapter 13, you keep your nonexempt property, so the only way lenders get any money is via your repayment plan. Of course, the courts will consider your disposable income so you don't pay more than you can afford.
How Does Repayment Affect Your Credit Score?
Both Chapter 13 and Chapter 7 bankruptcy negatively impact your credit score about the same. However, after bankruptcy, you will be free to start taking out loans again. In fact, getting credit cards and loans after bankruptcy is one of the best ways to rebuild your credit. As long as you keep the balances low and pay bills on time, your score should quickly rise.
Even with a low credit score, however, lenders may be more willing to lend to people with a Chapter 13 bankruptcy vs a Chapter 7. The lender may feel more comfortable with someone who tried to make a good faith effort to repay some of the debt.
Can You Save Money During Repayment?
If you have extra money, you should always try saving money, even during the Chapter 13 repayment plan. It can help if you fall behind a few months, or it can serve as financial support after you get out of bankruptcy. Plus, having extra disposable income will help get loans after your bankruptcy to boost your credit score. If you get a new job or promotion, and your income changes, your plan may change too. This is because the plan depends on how much disposable income you have. If you suddenly have more disposable income, your repayment may increase. On the other hand, if you have to take a job with a lower salary, you may be able to reduce your repayments. Typically, a change in salary doesn't affect 100 percent repayment plans.
Bankruptcy is a major decision, but it can be what you need to finally get your finances under control. With Chapter 13, you may have to repay some or all of the debt, unless you qualify for a zero repayment plan. If you would like to know more about bankruptcy and repayment, contact us at Custer, Custer and Clark LLC Attorneys at Law.
How Long Does the Repayment Period Last?
The repayment plan for Chapter 13 bankruptcy can last three to five years . In most cases, you can only propose a three-year repayment plan if your income is below the state median. Naturally, however, the shorter the repayment plan, the higher the monthly payment, and people with a lower income may not have enough to pay this high payment.
For this reason, many people still choose to take the full five years for their repayment plan. If you have the extra money, you may be able to get a repayment plan shorter than three years. You will only qualify for this, however, if you can and will repay the full amount you owe on unsecured debts.
How Much Do You Have to Repay?
Depending on your situation, the amount of money you repay can significantly vary. While some people choose to repay the full debt, others end up paying zero percent of unsecured debts. The leading factor that determines how much you pay is the "best interest of the creditors." In other words, it means the creditors won't get less because you filed for Chapter 13 instead of Chapter 7.
In Chapter 7, unsecured creditors get some money back after your nonexempt property is sold (excluding property you need to work and live). In Chapter 13, you keep your nonexempt property, so the only way lenders get any money is via your repayment plan. Of course, the courts will consider your disposable income so you don't pay more than you can afford.
How Does Repayment Affect Your Credit Score?
Both Chapter 13 and Chapter 7 bankruptcy negatively impact your credit score about the same. However, after bankruptcy, you will be free to start taking out loans again. In fact, getting credit cards and loans after bankruptcy is one of the best ways to rebuild your credit. As long as you keep the balances low and pay bills on time, your score should quickly rise.
Even with a low credit score, however, lenders may be more willing to lend to people with a Chapter 13 bankruptcy vs a Chapter 7. The lender may feel more comfortable with someone who tried to make a good faith effort to repay some of the debt.
Can You Save Money During Repayment?
If you have extra money, you should always try saving money, even during the Chapter 13 repayment plan. It can help if you fall behind a few months, or it can serve as financial support after you get out of bankruptcy. Plus, having extra disposable income will help get loans after your bankruptcy to boost your credit score. If you get a new job or promotion, and your income changes, your plan may change too. This is because the plan depends on how much disposable income you have. If you suddenly have more disposable income, your repayment may increase. On the other hand, if you have to take a job with a lower salary, you may be able to reduce your repayments. Typically, a change in salary doesn't affect 100 percent repayment plans.
Bankruptcy is a major decision, but it can be what you need to finally get your finances under control. With Chapter 13, you may have to repay some or all of the debt, unless you qualify for a zero repayment plan. If you would like to know more about bankruptcy and repayment, contact us at Custer, Custer and Clark LLC Attorneys at Law.
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