What Happens After Your Last Payment in a Chapter 13 Case?
- Unlike a Chapter 7 filing that wipes out your debts, if you file for a Chapter 13 bankruptcy, you can still pay your creditors back. The advantage of filing for Chapter 13 is that you still have to make payments to your creditors but the court allows these payments to have lower interest rates than if you had not filed for bankruptcy. To accomplish this purpose, you have to create a plan of repayment of your debts. The court analyzes your plan, and if it accepts your case, it gives you a period of three to five years (depending on your situation) in which you have to pay your creditors back.
- After your Chapter 13 case is approved, you have to start making payments to your creditors. To make your plan work, you have to make regular payments to the trustee. These payments can be made directly or through payroll deductions. If you set up the payments through payroll deductions, you are more likely to make all the payments you need, without missing the due dates. Your expenses must be reduced for the period of time in which you make payments, and you cannot acquire new debts without having the trustee's approval, since it might compromise your abilities for payment.
- After you have put your plan into practice for the period of time set by the court and made your last payments, your debts are discharged. You must keep in mind that not every debt is dischargeable: student loans, taxes you owe, public obligations and long-term obligations such as home mortgage, alimony and child support. All other debts you have are included in your plan and are discharged upon your final payment. After discharge, your debts are no longer valid, and your creditors cannot demand anything more from you.
- If you are required to make regular payments to the trustee, whether directly or through payroll deductions, and you miss a payment, two different things can happen. First, the court could dismiss your case, in which case you will have to keep making normal payments to your creditors, and they can even raise your interest rates again. The other possibility is that the court liquidates your debts under a Chapter 7 case, in which case you do not have to pay your debts but you might lose your property and assets.