Bankruptcy plan. What is it? Bankruptcy is a legal tool that allows you to eliminate your debt. Sometimes all your debt. Sometimes some of your debt. Each bankruptcy filing is different. But the basics for all bankruptcies remain the same. When you can’t repay the debt you owe, what do you do? That’s the premise of bankruptcy.
If you cannot afford to pay any of your debt, bankruptcy may allow you to eliminate it. Eliminating debt through bankruptcy is known as a discharge. A discharge is a legal order issued by the bankruptcy court relieving the debtor of his or her financial obligations. It eliminates the debts. If, though, you can afford to pay your debt, bankruptcy laws require you do so. Even if it is only a small percentage of your debt you can afford to pay back. Repaying your debts through bankruptcy is done through a bankruptcy plan.
Normally a bankruptcy plan is initiated with the filing of a Chapter 13 bankruptcy. The Chapter 13 plan will provide the terms of your debt repayment. Both businesses and individuals can file. It will list how much you will pay back. For how long you will repay your creditors. And it will include who you will repay. News of the bankruptcy of ‘American Idol’ producers’ debts were disclosed in a bankruptcy repayment plan.
If you cannot afford to repay your creditors in a Chapter 13 bankruptcy, a Chapter 7 may be an option. A Chapter 7 bankruptcy normally does not require you repay your debts. There is normally no type of bankruptcy plan with a Chapter 7 bankruptcy.
Providing for a bankruptcy plan where you repay your debts, or at least some of them, can be of benefit to a debtor. Sometimes a debtor who files for bankruptcy wants to repay some debts. Repaying mortgages are a common example, particularly when a debtor is in default on their mortgage. If a debtor is in foreclosure on their home, the mortgage arrearages (delinquent mortgage payments) can be made up through a Chapter 13 bankruptcy plan.