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Chapter 13 bankruptcy and the repayment plan

On the surface, the bankruptcy process can be intimidating. In reality, it can be a fairly simple procedure that assists the individual in financially re-establishing him or herself. For many Kentucky residents, Chapter 13 bankruptcy provides the opportunity to start over.

Under Chapter 13 bankruptcy, the bankruptcy petition is filed with the courts. Then, within 15 days from this point, a repayment plan must also be filed for court approval. This repayment plan indicates the amount that the individual proposes to pay to the bankruptcy trustee at regular intervals. The trustee will then distribute the appropriate payments to the individual's creditors based upon a court-approved repayment plan.

Creditors with priority claims are paid first. Priority claims include the majority of taxes, bankruptcy costs and child support. These claims are funded at 100 percent unless there is not enough disposable income to cover all of these claims.

Secured claims are paid next. These are items that the individual wants to retain and have a secured loan against the item. Items typically included in this category include the family home and vehicle. As long as payments are made and any arrears owed are taken care of, the individual typically is able to retain these items.

Finally, the Kentucky resident's unsecured claims are paid. However, these claims are only paid if there is available disposable income. For Chapter 13 bankruptcy purposes, disposable income is defined as all income, not including child support, after the appropriate amount for support of the individual and any dependents has been deducted. Additionally, up to 15 percent of the individual's gross income can be deducted for charitable contributions. A bankruptcy attorney can assist in determining the actual amount of disposable income that will be required to fund the repayment plan.

Source: bankruptcy.findlaw.com, "Chapter 13: Repayment Plan and Confirmation Hearing", Accessed on March 4, 2017

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