Chapter 13 Payments calculate repayment by figuring out living expenses.
Chapter 13 payments are established when individuals file Chapter 13 bankruptcy. There are six chapters of bankruptcy including Chapter 7, 9, 11, 12, 13 and 15. However, Chapter 13 and Chapter 7 are the two most common chapters filed by Americans. Chapter 13 Bankruptcy allows individuals to keep real estate, property and other valuable assets as long as the debtor abides by their repayment plan.
Once bankruptcy is approved, Chapter 13 payments are typically paid over a period of three to five years. Depending on the debtor's employment history, Chapter 13 payments can sometimes be made through payroll deductions. This arrangement must be approved by the Bankruptcy Court and the debtor's employer.
There are three categories of Chapter 13 payments including: secured creditors, unsecured creditors and post-creditors. Secured creditors include mortgage lenders and lending institutions which have provided a loan for large purchases such as automobiles.
Secured creditors are typically paid "outside" the Chapter 13 repayment plan. What this means is the debtor will have to make regular payments to lenders in order to retain possession of their assets. If the debtor fails to make payments, lenders can petition the Bankruptcy Court and ask for relief of stay. Once permission to remove the stay is granted by the court, lenders can proceed with foreclosure proceedings or repossession.
Unsecured creditors are paid "inside" the Chapter 13 repayment plan. These payments are made directly to the Chapter 13 Trustee for distribution. Unsecured creditors include companies or individuals who provided goods or services to the debtor. This might include credit card or department store loans, physicians, dentists, hospitals or other medical care providers.
Post-creditors include companies or individuals whom the debtor owes money after filing Chapter 13 Bankruptcy. This can include any incurred debts including utility bills, credit cards, rent or mortgage payments. Debts incurred after the debtor files bankruptcy receive no protection from the Bankruptcy Court.
If the debtor fails to make Chapter 13 payments according to their repayment plan, the Bankrupcy Court can summon the individual to liquidate their assets under Chapter 7 Bankruptcy Code. In some instances, the court may dismiss the case and withdraw bankruptcy protection altogether.