Determining Which Creditors Must Be Paid in Full For Chapter 13 Bankruptcy

In our struggling economy today, many debtors are looking for ways to stave off their creditors, keep their property, and get their mortgages back on track, and that can often be accomplished through filing chapter 13 bankruptcy. This was not designed as a way for debtors to avoid their obligations, but a second chance for them to devise a repayment plan that gets them back on their feet.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a plan for reorganizing a debtor’s finances and developing a plan to repay as much of their debt as possible within a shortened period of time. Some of their unsecured debts may be lowered or discharged completely, but there are a number of debts that cannot be reduced or discharged. It is important for a debtor to examine their options carefully and determine if chapter 13 is possible, or wise, for them. In most cases, the process for filing for chapter 13 bankruptcy have become so complex that it cannot be completed without the assistance of a bankruptcy attorney.

Chapter 13 differs from chapter 7 in that none of the filer’s personal property must be liquidated to pay off their debts. The repayment plan is based on the disposable income of the filer after they meet their priority debt payments.

Chapter 13 Repayment Plan

With the help of a bankruptcy trustee and their attorney, the debtor creates a repayment plan that allows them to repay many debts, catch up on some others, and get back on track with their creditors. Some of the requirements for a repayment plan include debts that must be paid monthly until they are repaid in full:

Priority debts generally include back child support and alimony payments, the majority of tax debts, many student loans, business commitments, such as back wages and salaries, as well as contributions to employee benefit funds

Mortgage default amounts

Other secured debts

Bankruptcy costs and fees, including the filing fee, attorney’s fees, and the trustee’s commission (which is generally between 3% and 10%)

Once the debtor’s disposable income is calculated less the monthly priority payments, the plan must include other unsecured debt payments. The debtor may be able to reduce the amounts of those payments, however. For some, they may be able to repay the debt at fair market value – such as a vehicle with a $10,000 loan. If the vehicle is only worth $6,000 at the time of the bankruptcy, the additional $4,000 may be discharged. Some other debts may be discharged outright at the time of the filing.

Getting Legal Help with Chapter 13 Bankruptcy

There are some requirements a petitioner must meet in order to even submit a petition for chapter 13 bankruptcy. In addition, there are stiff requirements in order to continue the process legally. There are those who would take advantage of the system and use it to defraud creditors while never intending to complete the repayment plan. It is important to obtain the advice of a knowledgeable bankruptcy attorney who can help debtors avoid those pitfalls, complete the plan, and restore their financial standing. They can also help them avoid the consequences of defaulting on their repayment plan, which would do further damage to their credit score.

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