“What Happens to Debt When You File Chapter 13” Do you feel overwhelmed by debt and are looking for a solution? The right option for you might be bankruptcy. Before filing bankruptcy, it’s important to understand all your options. You are no longer responsible for a debt that is discharged by a court.
The court’s decision on whether or not to discharge your debt is dependent upon the circumstances. Chapter 13 is first and foremost a plan of repayment. Expect to repay your debts over several years. If you can meet certain requirements, a court may then eliminate some of the remaining debt.
What is Chapter 13 bankruptcy?
Most people file for bankruptcy under either Chapter 7 or Chapter 13, Chapter 7 is the most common type of bankruptcy. It eliminates your entire debt. Chapter 13 involves a repayment plan. After you file for bankruptcy, you will work with a trustee on a payment plan that is approved by the court. The trustee pays your creditors. No more harassing calls or letters from creditors.
You pay off your debts over a period of three to five years. You’ll need a 5-year plan if your income is higher than the median income in your state. If your income falls below the median, a 3-year plan is appropriate.
The Benefit of Chapter 13
Chapter 13 has the benefit that it stops you from accruing more debt and allows you to pay only pennies per dollar. If you owe $15k in medical debts, for example, you might only have to pay a fraction. The court can discharge any remaining debt that you haven’t been able to pay.
You can keep important assets like your car or home. You don’t need to give everything up to pay off your debts.
What is paid first under Chapter 13?
Three types of claims can be made by creditors in Chapter 13:
This will be important during your repayment plan, as some creditors have a greater right to compensation than others.
It’s important to consult with an experienced bankruptcy attorney before deciding on whether or not to file bankruptcy. Bruner Wright P.A explains how the court prioritizes different creditors, and what this means for you in your daily life.
The court gives these special treatment. The plan must be able to pay all priority claims – except for a few exceptions.
Priority claims include:
- Bankruptcy filing fee
- Support for Children
Creditors have the right to seize collateral in case you fail to pay. These include auto and home loans. You must pay the creditor the full value of any collateral that you wish to retain.
If you pay off the amount that is past due during the repayment plan, you can continue to make payments according to the original terms.
If you are behind in your mortgage payments and want to catch up, Chapter 13 can stop foreclosure proceedings. You can catch up on the payments over a reasonable period of time. Many people make this a priority.
You could lose your house if you are unable to make up for the late payment and continue making regular mortgage payments. Your lawyer can help you decide if it is in your best interest to sell or keep your house.
The creditor cannot take any collateral from you in the event that you fail to pay.
Some examples include:
- Charge card debt
- Medical debt
- Payday loans
You do not have to pay off all unsecured debts. You can pay off all of your debts by paying your entire disposable income during the three-year- or five-year repayment period. Unsecured creditors must get the same amount as if you had filed for Chapter 7.
DISCHARGING TAX DEBTS
The court’s decision to discharge your debts once you have completed your repayment plan will depend on your circumstances. Each person’s circumstances are unique, and Chapter 13 law can be complicated. Talk to a bankruptcy attorney about your chances of receiving a discharge under Chapter 13.
Circumstances for Debt Discharge
You may be able to discharge your remaining debts if:
- You have met all of your domestic support obligations
- If you have not received a discharge from a prior bankruptcy case, it must be filed within the last two years in the case of a Chapter 13 bankruptcy and four years in the case of a Chapter 7, 11 or 12 bankruptcy
- Completion of a financial management course
DEBTS WHICH CAN’T HELP DISCHARGED
Some types of debts are not dischargeable by the court, including but without limitation:
- Support for Children
- Federal loans
- Restitution ordered by a court based on an offense
You might not be able to pay off all your debts if you can’t finish your repayment plan. This could happen if you’re unable to work because of a serious injury that wasn’t your fault.
Talk to your lawyer about getting a hardship release. This can help wipe out all the debts that are not the most urgent.
What Happens to Debt When You File Chapter 13? Are you still asking your self?
Call Us Today if You Are Filing for Chapter 13 Bankruptcy
Bruner Wright P.A can help you if your debts are too high. Contact Us or Dial 850-385-0342. We will discuss your situation with you, including the debts that you would pay during Chapter 13 and whether or not a court can discharge your debts.
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