If you make too much income to qualify for Chapter 7 bankruptcy or if you know you would lose significant and valuable assets due to the liquidation process, Chapter 13 — also known as a “wage earner’s bankruptcy” — may be a better option for you. People with more assets and high income can qualify for Chapter 13 even if they don’t qualify for Chapter 7. 

Part of what sets Chapter 13 bankruptcy apart from Chapter 7 is that it has a repayment plan that the person filing for bankruptcy must complete prior to receiving a discharge. Learning more about how the repayment plan works can help you determine if Chapter 13 bankruptcy is right for you.

The repayment plan allows you to make a single monthly debt payment

Chapter 13 bankruptcy usually involves the court naming a trustee who will facilitate meetings with creditors and negotiate a repayment plan. The focus for these plans will usually be any priority and secured debts you have, including tax debt and mortgages. Unsecured debts will receive lower priority and may receive less repayment as a result. 

The individual filing for bankruptcy will send funds to the courts or the trustee, possibly via direct debit from their pay. The trustee will then distribute the funds as agreed between the various creditors. The plans may last anywhere from three to five years depending on the amount of debt and other factors. In some cases, changes to the plan may become necessary if you experience a substantial change in income. 

Provided that you successfully complete the plan and make all of the necessary payments, the remaining balances on your unsecured debts may become eligible for discharge. 

Bankruptcy doesn’t have to be a scary process. The more that you learn about how things work, the easier it will be to manage your future.