Plan Period

The amount of time given to the debtor to pay off the debt depends on the individual's income. Those with monthly income less than the state's current median income can pay off the debt, or part of it, in three years, while those with income higher than the median income can take up to five years. In no case, however, can the plan require longer than five years to pay off the debt. The time given to the debtor to pay off the debt is known as the plan period.

Filing Chapter 13

Before filing for Chapter 13 bankruptcy, a person must get credit counseling and, if possible, draw up a plan to pay off the debt. While filing the petition, the debtor must provide a schedule of assets and liabilities, a schedule of income and expenditure and a schedule of unexpired leases. The debtor must also file a statement of financial affairs and a complete list of debtors and amounts owed.

Paying Off the Debt

Under Chapter 13 bankruptcy, the debtor must draw up a plan to pay off the debt depending on his income and other resources. This plan is discussed with the creditors during a meeting. If required, changes are made to it to accommodate all the creditor requirements and debtor limitations. The plan is then submitted in the court for approval and, once approved, both debtor and creditors are bound by it. The debtor must pay the agreed upon amount to an appointed trustee on a monthly basis. The trustee then distributes these funds to the creditors. The creditors cannot pursue the debtor or any cosigners once an individual files for bankruptcy.

Types of Claims

Under Chapter 13, there are three types of claims. Priority claims include taxes and other fees related to bankruptcy proceedings and must be paid in full. For the secured claim, the debtor must make payments equal to at least the value of the collateral. The debtor need not pay off any unsecured loans in full, as long as the debtor uses all available disposable income to pay off the debt during the plan period. Also, the creditor must receive at least as much payment as they would have received if all the assets of the debtor were liquidated.

Exception

At the end of the plan period, all your debts will be discharged and lenders will no longer have any right to pursue you. Certain debts may not be discharged under Chapter 13, however, unless you are able to prove extreme hardship. These include home mortgage, alimony and child support, government funded loans and educational loans. These loans must be paid in full even after filing Chapter 13 bankruptcy.