Bankruptcy is a legal system that facilitates debt relief. Individuals struggling with high credit card balances, major medical debts and other forms of financial pressure can ask the courts for relief. Bankruptcy can help people in multiple different ways.
As soon as a person files initial bankruptcy paperwork, the courts issue an automatic stay. People can avoid aggressive debt collection activity such as lawsuits by filing bankruptcy at the right time. When they complete the bankruptcy process, filers receive a discharge of certain eligible debts. That discharge eliminates their legal obligation to pay those debts in full.
Those with above-average income or substantial personal resources often choose Chapter 13 bankruptcy because they do not qualify for Chapter 7 proceedings. While Chapter 7 bankruptcy can require as little as a few months, Chapter 13 bankruptcies require years to complete.
A repayment plan can last for up to five years
Every bankruptcy case is different from the next. Chapter 13 cases tend to require careful customization. The filer reports their debts and current finances to the courts. They must attend a meeting with a court-appointed trustee and representatives from their various creditors.
At that meeting, they propose and then negotiate the details of a repayment plan. That plan involves making a monthly payment to the trustee who then distributes the funds to the creditors in a specific manner. Depending on the overall amount of debt and other circumstances, the amount someone pays and how long they make payments can vary drastically from one filing to the next.
Some people have a basic three-year repayment plan. After 36 structured payments, they can move forward in pursuit of their discharge. However, for those with more debts and other complicating factors, the repayment plan can last longer. In some cases, the final terms may include up to five years of structured monthly payments.
The duration of the repayment plan ultimately establishes how long the bankruptcy process takes. The filer cannot request the final discharge of their debts until they complete the repayment plan agreed upon during the creditor meeting.
Even after finishing the repayment plan, they may have to wait several months for their final hearing in court. The good news is that any remaining balances on the debts included in the repayment plan are likely eligible for discharge. Filers are also in a good position to renegotiate any secured debts that may persist even after a bankruptcy discharge.
Understanding the timeline for a Chapter 13 bankruptcy can help people mentally prepare themselves for the path ahead. Those who successfully complete a repayment plan can eliminate some of their debt and avoid aggressive collection efforts that could negatively affect their financial circumstances.