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Repayment plans under Chapter 13 of the Bankruptcy Code

Wisconsin debtors filing a bankruptcy petition under Chapter 13 need to file a repayment plan with the petition. The repayment plan must make provisions to pay the trustee at regular intervals, usually every two weeks or monthly. The Chapter 13 trustee distributes the payments to creditors once the plan is confirmed by the court at a hearing.

Claims by creditors are divided into three categories: priority, secured and unsecured. Most taxes and costs of bankruptcy proceedings are priority claims, which are required to be repaid in full unless an exception is made by the priority creditor.

Secured debts are those secured by some collateral which the creditor is entitled to claim if the debtor fails to repay the debt. Unsecured debts are those that have no collateral.

If the debtor wishes to retain the collateral for a secured debt, the repayment plan must provide for payment of at least the value of the collateral to the creditor. If the secured debt was used to buy the collateral and the debt was incurred within a prescribed time frame before the bankruptcy filing, the creditor must be repaid the entire debt amount. Repayment of certain secured loans, such as a home mortgage, can be according to the repayment schedule attached to the original loan, if the plan provides for repayment of any delinquent payments.

Unsecured creditors do not need to be repaid in full under a Chapter 13 repayment plan. However, the debtor must pay as much as if the debtor's assets were liquidated under Chapter 7. The repayment plan must ensure that the debtor pays their entire disposable income to the trust for a specified commitment period.

The court must hold a hearing for confirmation of a repayment plan within 45 days of the meeting of the creditors. The creditors have the right to object to such a confirmation. If the plan is rejected, the debtor is required to file a modified plan with the court. If the court dismisses the Chapter 13 application, the trustee is obligated to return all funds to the debtor after retaining some for the costs. Although the process may seem complex, once it is complete, the debtor can get a fresh start.

Source: USCourts.gov, "Individual Debt Adjustment," accessed on Feb. 20, 2015

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