Chapter 13 is a type of reorganization or debt consolidation that is provided as part of the bankruptcy code. In Chapter 13, the Debtor proposes a plan that represents his or her best effort to pay creditors over a period of time. Almost all debts can be included in the “Plan”. The Debtor makes payments to a Trustee who pays creditors according to the Plan. Generally, the Plan provides for payment of secured debts (like automobile payments) first, followed by taxes and other obligations given priority by law. Unsecured debts (like credit cards) receive only as much as the Debtor is able to pay.
The “Plan” payments are determined by the Debtor’s ability to pay. Since the Debtor is not usually required to pay all debts in full, the Plan payments are almost always significantly less than the Debtor paid before entering the Plan.
The “Plan” typically lasts three (3) years, but can last up to five (5) years if the Debtor needs a longer period of time to pay debts which must be paid, such as secured debts or taxes. Upon the successful completion of the Plan, all remaining debts (except student loans) are discharged.
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