Whether your debt has gotten out of control because of a medical condition or because you close the gap between what you earn and your cost-of-living expenses each month with credit cards, excess debt can make your life very difficult.
You may only be able to make the minimum payments on your various debts each month, which means that the balances on your accounts just keep going up despite your ongoing struggle to pay. Bankruptcy can reduce your obligations by giving you a discharge of your unsecured debts, which will likely include your medical debts and credit cards. It also protects you from aggressive collection activity through an automatic stay.
If you currently make too much money to pass the Tennessee means test for Chapter 7 bankruptcy, Chapter 13 bankruptcy may be a viable way for you to consolidate your existing debt and take control of your financial circumstances. In addition to not having a limit on your income like Chapter 7, Chapter 13 bankruptcy also requires repayment to your creditors before your discharge. Understanding how that repayment period works can help you decide if Chapter 13 bankruptcy is right for you.
The bankruptcy trustee will determine who gets what
All of your creditors will likely want to receive priority consideration, and you may have a personal bias about who you want to pay because of your experiences with the individual companies. In order to make Chapter 13 proceedings as fair as possible to everyone with a financial interest in the process, it is necessary for the courts to appoint a trustee to oversee Chapter 13 filings.
The trustee helps you conduct a creditor meeting and develop a repayment plan. They will also handle the plan you create. Instead of sending out checks to each individual creditor, you will only need to issue a single check during the repayment period.
The trustee will allocate a specific amount to individual creditors from each payment you make. They are effectively a neutral party who ensures that you meet your obligations under the repayment plan.
How long will you have to pay your creditors?
The specifics of the repayment period in your bankruptcy will vary depending on multiple factors, including the overall value of the assets you have, the amount of your debt, the nature of the debt and your current income.
It is common for the courts to order most individuals to follow a repayment plan for three years. However, in some cases, that amount of time may increase to five years. While it may be frustrating to repay your unsecured debts during bankruptcy, at the end of that repayment period, the courts will likely discharge the remaining balance of your unsecured debts when you finish the plan.