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Chapter 13 is the second most popular consumer bankruptcy in the country. It requires that debtors make regular monthly payments for 3-5 years. If they stick to the schedule, then certain unpaid debts are discharged at the end of the process. Even better, they don’t lose any non-exempt property.
Three to five years is a long time, however. A lot can go wrong. According to some statistics, only 40% of Chapter 13 filers stick it out for the entire payment plan and get a discharge at the end of the road. Below, our Orange Countychapter 13 bankruptcy lawyer offers some tips on how to successfully complete a Chapter 13 payment plan.Contact our office if you are considering bankruptcy or are struggling with debts and need to discuss your options.
Understand What You Must Pay Each Month
Chapter 13 bankruptcy requires monthly payments to the bankruptcy trustee, who will then turn around and send the payments to your creditors. If you stick to the plan, then your creditors cannot take any legal action against you for the duration of the bankruptcy, such as filing a debt lawsuit or garnishing your wages.
You need to fully understand what you owe. Generally, certain priority debts will get paid in full, including family-law obligations (like child support) and any recent taxes. Then you will fully pay secured debts and a percentage of your unsecured debts. Talk to your attorney if you are confused about the monthly amount.
Create a Budget
Many of our clients are immediately shocked at what they will pay each month. Some belt-tightening might be in order, so it is critical to create a budget. Some people only need a pen and paper, but it is vital that you fully understand all income coming in, along with all monthly expenses. Many people have no idea where the money goes each month, and now is the time to figure out how to live within your means.
Some people like to put technology to work for them, so they might use a budget app. Use technology if you find it helpful to track what you spend each month.
Save Up an Emergency Fund
Try to put a little away each month to an emergency fund. That can tide you over should you encounter temporary difficulty on your bankruptcy journey. Imagine a sudden $2,000 dental expense or an expensive repair for your car. You want to stick to your repayment plan without missing a month, so you would benefit from an emergency fund to provide a cushion.
It isn’t always easy to save. Your payment plan is based on your disposable income, and most people are using most of their money to pay their creditors. However, you might be able to trim some expenses, like cancelling a gym membership or a streaming service.
Avoid Any New Debt
In Chapter 13 bankruptcy, debtors typically cannot take on new debt without prior permission from the trustee. Nonetheless, some people end up getting debt from a payday lender or from a family member. Ideally, you should not take on any new debt, even if you think you have access to it. New debt only makes it harder to stick to your plan.
Attend All Meetings and Hearings
You will need to attend aMeeting of Creditors, as well as possibly other hearings. You should attend every hearing your lawyer tells you to attend. The good news is that the Meeting of Creditors is now almost always held virtually.
Opt for Payroll Deduction
Typically, debtors either write a check to the trustee each month or have the amount deducted each pay period. Payroll deduction is easier and reduces the risk of you missing a month or being a few days late. Over time, you also won’t even notice the money is being deducted, which might make adjusting to your budget easier.
Stay in Contact with Your Lawyer
It isn’t surprising when people encounter financial difficulties during their payment plan. Three to five years is a long time. Something is bound to happen. You might have your hours at work cut or even lose your job. Some people suffer a medical scare and end up in the hospital, or their home needs an expensive repair.
Always stay in touch with your lawyer. We can answer your questions and, in certain cases, get your payment plan adjusted if you are facing temporary financial trouble. If you face more permanent problems, like disability, we can discuss a hardship discharge, or whether you can convert to a Chapter 7.
You will not be the only person who struggles to complete a payment plan. According to theAmerican Bankruptcy Institute, only about 40% of Chapter 13 filers complete their plan. That means 6 out of 10 fail at some point along the way.
And hopefully you filed for Chapter 13 protection with an attorney’s help. This same study found that only 2.3% of chapter 13 filers without an attorney (“pro se” filers) actually completed their payment plan. That’s less than 1 out of 40!
Reach Out to Others for Support Along the Way
There are many success stories of people finally paying off their debts in Chapter 13. Look for online forums. Five years might seem like a lifetime, but you can go one month at a time. Connecting with people who have successfully completed bankruptcy can empower you to feel confident about coming through successfully on the other side.
Speak with an Orange County Bankruptcy Lawyer Today
At Resolve Law Firm, we have seen bankruptcy transform lives. Clients who cannot sleep at night worrying about their debts suddenly feel empowered to pay off their debts and move positively forward.
When handled the right way, a Chapter 13 is a powerful tool for debtors to get control of debt. By sticking to a payment plan, you can avoid other collection activity and, after a few years, wipe out qualifying debts and fully achieve financial freedom. Call us today to speak with an attorney about your bankruptcy options.
