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Understanding the repayment plan under Chapter 13 bankruptcy

One of the potential advantages that Chapter 13 bankruptcy has over Chapter 7 bankruptcy is that it does not require the debtor to sell off or liquidate all of his assets in order to satisfy his creditors and complete his bankruptcy discharge. Rather, a Pennsylvania debtor who chooses to use Chapter 13 bankruptcy to find a fresh financial start may set up a repayment plan that provides his secured and unsecured creditors with payments toward the money they are owed. This post will generally discuss the Chapter 13 repayment plan; readers who would like to learn how they may benefit from Chapter 13 bankruptcy and its various protections are encouraged to speak with their own attorneys. This post is not intended to serve as legal advice.

Once a debtor files for Chapter 13 bankruptcy he has only fifteen days to submit his repayment plan to his bankruptcy court. The repayment plan must outline how the debtor will use his income to pay down his priority and secured debts. Priority debts, such as back taxes, must be paid in full. Secured debts are those that are protected by collateral like cars and houses; if a debtor wants to retain possession of the collateral then at the very least he must pay the creditor for that property the value that the property currently possesses.

Unsecured creditors, or those whose debts are not protected by collateral, may not receive all of the money they are owned by the debtor. The debtor must pay them something, though the full amount may not be necessary for the bankruptcy court to approve the repayment plan.

Once the court approves the plan then the debtor is obligated to follow its terms to begin repaying his creditors. In the event that an unforeseen life event derails the debtor's ability to make his payments he may be able to have his repayment plan modified to accommodate his modified ability to pay. Modifications can ensure that a debtor is able to maintain his repayment schedule and eventually achieve discharge of his debts through bankruptcy.

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