Are All Debts Repaid in a Chapter 13 Bankruptcy?
Are you struggling with debt and considering the possibility of a Chapter 13 bankruptcy filing? If so, you may already be aware that Chapter 13 bankruptcy cases operate much differently than Chapter 7 bankruptcy cases for individuals. While Chapter 7 bankruptcies do not require debtors to repay any debts that are eligible for discharge, the entire premise of a Chapter 13 case is that certain debts will need to be repaid over a period of time outlined in a proposed repayment plan. Debtors file for Chapter 13 over Chapter 7 for different reasons, including eligibility issues for Chapter 7 bankruptcy as well as the significant benefit of Chapter 13 enabling a debtor to avoid foreclosure and to remain in their home.
If you are thinking about Chapter 13 bankruptcy and just beginning to learn more about how it works, you may be wondering: will I need to repay all of my debts in a Chapter 13 filing? In short, the answer is usually no, but it is important to be clear about which debts must be repaid. Our West Palm Beach bankruptcy attorneys can provide clarification.
Required Repayments Depend on the Type of Debt
In a Chapter 13 bankruptcy case, the type of debt will determine whether it must be repaid, or whether remaining debt may be dischargeable at the end of the terms of your repayment plan. In general, there are three types of debt to consider a Chapter 13 filing: secured debt, unsecured priority debt, and unsecured nonpriority debt.
Secured debt is any debt for which there is collateral, and for which the creditor could repossess the collateral if you do not repay the debt. The most common examples include mortgages and auto loans. With a mortgage, your home is the collateral, and with an auto loan, your vehicle is the collateral. If you want to keep the collateral, all secured debt (i.e., past and currently owed debt) will need to be repaid over the course of your repayment plan. You can continue to make payments on secured debt if the terms of your original loan last beyond the repayment plan end date. There are some exceptions to the requirement that secured debt be paid in full, typically involving what is known as a “cramdown,” but you should discuss this possibility with an attorney.
Unsecured priority debts also must be repaid in full over the course of the repayment plant. These are types of debt that are nondischargeable and thus will not be discharged at the end of a bankruptcy case. Examples include family support debt (such as child support or alimony) and certain tax debts.
Unsecured nonpriority debts can be discharged at the end of a bankruptcy case. Common examples include credit card debt and medical debt. The amount of these debts that will be discharged will depend on how much of them must be repaid during the repayment plan, which will depend on asset exemptions and your disposable income. At least as much unsecured nonpriority debt must be repaid as would be paid to creditors in a Chapter 7 liquidation bankruptcy.
Contact a West Palm Beach Bankruptcy Attorney Today
Any individual or married couple in South Florida considering a Chapter 13 bankruptcy filing should begin working with an attorney as soon as possible to draft a repayment plan in order to understand the financial implications of this type of bankruptcy and to get started on their bankruptcy petition. One of the experienced West Palm Beach bankruptcy lawyers at Kelley, Kaplan & Eller can begin working with you today on your Chapter 13 case. Do not hesitate to reach out to our firm to learn more about reorganization bankruptcy options for individuals and how a Chapter 13 bankruptcy may be able to benefit you.
Sources:
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics
law.cornell.edu/uscode/text/11
