You have to file a repayment plan within 14 days of filing for bankruptcy. The trustee must approve the repayment plan. The plan must provide for regular payments by you to the trustee, usually every two weeks or once a month. The trustee receives the payments and then pays the creditors according to what the plan says.
There are three kinds of claims that get paid according to the repayment plan:
- Priority claims
- Secured claims
- Unsecured claims
Priority claims are given special status by the bankruptcy laws. This means that the repayment plan must pay priority claims all of what they are owed. Some examples of priority claims are:
- Costs of bankruptcy
- Child support
Secured claims are those creditor claims that allow the creditor to take back the property if the debt is not paid. If you want to keep the property, the repayment plan requires that the secured creditor receive at least the value of the property.
For example, let's say you still owe $15,000 on your car loan. Let's also say that the car is only worth $12,000 now. Under the repayment plan, the secured creditor must receive at least $12,000 for the debt to be considered paid off. This is helpful to you because the debt is considered paid off at $12,000 even though you owe $15,000.
A secured creditor of property that you want to keep will also be paid the entire amount of the arrears at the time of filing. The arrears is the total amount of monthly payments that were owed but not paid.
For example, if you are trying to save a home, and have missed mortgage payments for 5 months, those five months of missed mortgage payments must be paid in full over the course of the plan, along with all the regular monthly mortgage payments that have come due during the plan.
Unsecured claims are those made by creditors that have no rights to take back any property if the debt is not paid. Some examples of unsecured claims:
- Credit cards
- Payday loans
- Medical bills
Unsecured claims don't need to be paid in full, as long as:
- You pay all disposable income during the bankruptcy and
- Unsecured creditors receive at least as much as they would have received if you filed for Chapter 7 bankruptcy
Disposable income is the amount of income left over after paying necessary living expenses.
Updated: January 2017