Have you ever heard of Chapter 13 bankruptcy? It's a court-monitored repayment plan that can help you manage your debts. But there's a common misconception that filing for Chapter 13 means you have to repay all your debts in full. That's not necessarily the case. In fact, some creditors may only receive a portion of what you owe them.
Once you've completed your Chapter 13 plan payments, your bankruptcy case doesn't necessarily come to an end. So, how do you know when your Chapter 13 bankruptcy is officially over?
Well, the answer isn't as straightforward as you might think. The length of your repayment plan will vary depending on your income, expenses, and the amount of debt you owe. Typically, a Chapter 13 repayment plan lasts between three to five years.
During this time, you'll make monthly payments to a court-appointed trustee, who will then distribute the funds to your creditors. Once you've made all your payments, the trustee will file a notice with the court stating that you've completed your repayment plan.
But that's not the end of the road just yet. You'll still need to attend a final hearing, where the court will review your case and determine whether any additional payments are necessary. If everything checks out, the court will issue a discharge order, officially ending your Chapter 13 bankruptcy case.
So, while filing for Chapter 13 bankruptcy may seem daunting, it can be a useful tool for managing your debts. Just remember that it's a complex process that requires careful consideration and guidance from a qualified bankruptcy attorney.
How Long Does Chapter 13 Last?
When filing for Chapter 13 bankruptcy, your repayment plan will typically last for either 3 or 5 years. However, if you opt for a 100% Chapter 13 plan, where you pay back all of your unsecured debt, your plan may be shorter than 3 or 5 years.
If your income is below the Means Test, you will have a commitment period of 36 months. But, you can propose a plan that lasts longer than 36 months, such as a 60-month Chapter 13 payment plan. This option can lower your monthly payments, making it easier for you to complete your Chapter 13 plan.
If you want to estimate your Chapter 13 payment, you can use our free Chapter 13 calculator.
It's important to note that the minimum term for a Chapter 13 plan is 36 months or until you pay your unsecured debts in full. This means that if you pay 100% of your unsecured debt, you could finish your Chapter 13 plan sooner than 36 months. However, keep in mind that you only need to pay the creditors who file a claim in your case.
If your income exceeds the Means Test, the minimum commitment period is 60 months. But, paying your unsecured creditors who file claims in full could end your Chapter 13 case sooner than 60 months.
When Should I Stop Making My Chapter 13 Payments?
It's important to keep making your Chapter 13 payments until the trustee instructs you otherwise. If you accidentally overpay, don't worry - the trustee will refund the excess amount back to you. Once you've made all your payments, the trustee will conduct an accounting and audit before your bankruptcy is complete.
It's worth noting that your Chapter 13 case isn't officially over until the trustee finishes their work, which could take a few months after your last payment. But once you receive your discharge and the court closes your case, you'll have a clean slate and a fresh start.
After your bankruptcy is complete, any remaining unsecured debts will be discharged, meaning creditors can no longer try to collect the debt from you. However, it's important to keep in mind that student loans are usually not dischargeable, so you'll still be responsible for paying those off if you didn't do so during your Chapter 13 case.
Remember to Complete Your Debtor Education Course
Completing the second bankruptcy course is crucial if you want to receive a bankruptcy discharge. To do so, you must enroll in a debtor education course from a provider approved by the government. Good news is that most providers offer both the first and second bankruptcy courses, so you may be able to stick with the same company you used for credit counseling when you filed for bankruptcy.
It's easy to forget about the second bankruptcy course, which is why it's recommended to take the debtor education course after filing for bankruptcy but before the First Meeting of Creditors. This way, you won't have to worry about any issues with your bankruptcy discharge once you complete Chapter 13.
What Is a Chapter 13 Hardship Discharge?
What happens if you fall behind on your Chapter 13 payments due to unforeseen circumstances? Fortunately, there is an option available to you: a hardship discharge.
However, a Chapter 13 hardship discharge is only granted under certain conditions:
- You are not at fault for failing to complete the Chapter 13 plan and the situation was beyond your control.
- Your unsecured creditors receive the same amount they would have received if you had filed for Chapter 7 liquidation.
- Modifying the Chapter 13 plan is not possible.
It is important to note that certain debts are not discharged through a hardship discharge. These include priority unsecured debts such as alimony, child support, and income taxes, as well as student loans, secured debts like mortgages and car loans, and arrearage on secured debts such as past-due mortgage payments. Additionally, federal, state, and local tax liabilities, restitution and fines from criminal proceedings, damages from drunk driving accidents, and debts that were not listed in your bankruptcy case are also not discharged.
If you are struggling to make your Chapter 13 payments, there are options available to you. Your bankruptcy lawyer can help you modify your plan to lower your monthly payments or even convert your case to a Chapter 7 case. It is important to seek help as soon as possible to avoid falling further behind.
What Is the Chapter 13 Means Test?
The Means Test is a calculation used to determine your average monthly income and median income. To calculate your average monthly income, the amount of income you received during the six months prior to filing for bankruptcy is used. This amount is divided by six to determine your average monthly income. The resulting amount is then multiplied by 12 to determine your median income.For instance, if you and your spouse earned a gross income of $48,000 during the past six months, your average monthly income would be $8,000 ($48,000 divided by 6). Your median income for the year would be $96,000 ($8,000 multiplied by 12).In California, the median income for a two-person household is $93,175. If your median income is higher than this amount, you will be required to pay at least 60 Chapter 13 payments. Alternatively, you may be required to pay the payments until 100% of the unsecured creditor claims are paid and priority unsecured creditors are paid in full.To determine if you qualify for Chapter 7 or Chapter 13 bankruptcy, take our free bankruptcy means test.
Get Help with Debts You Cannot Afford to Pay
Dealing with debt can be extremely stressful. You may have the intention to pay back your creditors, but they may not believe you. The good news is that there are affordable ways to get out of debt.