You would have to complete all required payments under the plan before receiving a discharge of any unsecured debts that were not paid in the plan. Although filers are able to come up with the total amount payable under the chapter 13 plan sooner, the chapter 13 trustee does not allow repayment in full prior to the expiration of the originally approved length of the plan (some exceptions apply).
If the filer experiences a dip in her/his income while in chapter 13, the bankruptcy case could be converted to chapter 7 for change in circumstances. Conversion of the case would allow the person to obtain a discharge of their unsecured debts and receive a fresh start in a fairly short period of time. If the original chapter 13 contained a request to discharge a second mortgage, the conversion will reverse this request and the second mortgage will remain unaffected by the bankruptcy.
If the filer experiences a change of income within the length of the plan, it may not be necessary to adjust the chapter 13 monthly repayment amount. However, if the filer's income increases significantly, then the chapter 13 trustee may request higher monthly payments going forward. The trustee may monitor the filer's income through tax filings.
Only mandatory payroll deductions are recognized by the chapter 13 trustee. Those include federal, social security, medicare, state, and local tax withholdings that the employees must participate in as condition to their employment. However, certain deductions that are normally not allowed when calculating one's projected annual income in chapter 7 are allowed in chapter 13. For example, you may deduct your monthly 401(k) loan repayments in chapter 13.
Upon the filing of the chapter 13 bankruptcy, the filer would have to begin making monthly payments to the chapter 13 trustee. These payments must equal the filer's monthly disposable income - the portion of the monthly income not required to meet the necessary needs of the filer and his/her dependents. In other words, the payment equals the filer's monthly income less mandatory payroll deductions and living expenses. In five-year plans, monthly expenses are determined on the basis of the applicable IRS standards.
Generally, chapter 13 plans last either three or five years depending on whether the filer's income is below or over the state median income. Filers whose income exceeds the state median income for the respective household size would have to complete a five-year repayment plan whereas filers with lower income have the option of a three-year plan.
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