Understanding New York Chapter 13 Repayment Plans

If you’re thinking about what to do about your mounting debt, you might consider filing for bankruptcy. Specifically, you might contemplate filing for a New York Chapter 13 bankruptcy because it allows you to retain your property and still make payments on any loans or other debt that you’ve incurred. It also gives you an opportunity to save your New York home from foreclosure because it lets you stop proceedings and catch up any past due payments over time in your repayment plan. Read on to learn more about Chapter 13 reorganization plans. 

Types of Debt

The type of debt that you have affects your bankruptcy filing. There are a few categories for debt balances, including priority, secured, or unsecured. 

  • Priority balances: includes back taxes owed, ongoing child support payments, and costs related to filing for Chapter 13 protection
  • Secured debts: includes auto loans, mortgages, or other obligations that are supported by collateral
  • Unsecured debts: includes credit card balance, health care bills, or other loans that were obtained with no collateral and obtained with a promise to pay the lender back in a timely fashion; these creditors are last in the pecking order for payment, and any unpaid part of this type of debt is forgiven at the end of the repayment period

Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy

A Chapter 13 bankruptcy is referred to as a “wage earner” bankruptcy because it requires you to have a steady source of income in order to file– you must have enough money to repay some of your debt. Unlike a Chapter 7 bankruptcy which wipes out all your debts, in a Chapter 13, you repay your debts over time based on a repayment plan.  

How the Terms of a Repayment Plan are Established

The terms of your repayment plan will depend on a few different factors. First, a means test is used to estimate the duration of your repayment plan. If your monthly income is lower than the state median, you will probably be required to make plan payments for three years. If your income is higher than the state median, you will likely make payments for five years. A means test might have disqualified you from filing a Chapter 7 bankruptcy in the first place because you earn too much income. 

The amount of the payment depends on the type of debts that you have incurred and how much disposable income you have to pay them with. IRS guidelines, state law, and the bankruptcy court itself are all factors used to establish how much you can afford to give to your creditors every month. 

What Happens During the Repayment Period?

When you’re in the repayment time, an automatic stay applies. This acts like a legal “red light” that is activated when you file bankruptcy, and your creditors can’t collect on debts that are part of the repayment plan; you don’t have any direct contact with creditors during the Chapter 13.

Considering Filing for a Chapter 13? Get Legal Help

If you’re exploring protection from your creditors, you will probably want to talk to a lawyer. An experienced attorney can discuss how to file for bankruptcy and how it can be an advantage to you. They may also assist you with making sure that creditors comply with the legal stay. Contact a MOWK Law bankruptcy attorney to get started with your bankruptcy plan.