What debts must I repay in Chapter 13?

Not all debts must be repaid during Chapter 13

If you are familiar with bankruptcy, you may have heard that if you file Chapter 13 bankruptcy, you have to repay all your debts. As a result, you may have been discouraged from seeking the relief that this type of bankruptcy offers. Although it is true that you have to repay some debts in Chapter 13, not all debts are fully repaid. Knowing how the process works can help you decide whether this type of bankruptcy is right for you.

Debts in Chapter 13

In Chapter 13, you repay your debts according to a repayment plan over a three to five-year period. Whether a given debt must be repaid during the process depends on the type of debt it is. Certain priority debts, such as child support, taxes or alimony must be fully paid under the plan in order for the plan to be approved by the court. Additionally, administrative expenses of the bankruptcy process, such as court costs and attorneys' fees must be fully repaid as well.

However, unsecured debts-debts such as credit card bills or medical debts that are not secured by collateral-do not typically have to be repaid at all during the bankruptcy. The bankruptcy laws require your repayment plan to give your unsecured creditors the amount that they would have received if you had filed Chapter 7. Since Chapter 7 discharges most unsecured debts, this means that the same typically happens in Chapter 13.

Typically, the only time that you must repay your secured debts is when a creditor objects to your proposed repayment plan. However, in such an event, a court will not require you to repay your unsecured debts unless your disposable income is sufficient to repay at least a portion of your unsecured debts. Since most persons that file bankruptcy have little disposable income, it is rare that you would have to repay any significant amount to your unsecured creditors.

Secured debts, which are debts secured by collateral (e.g. mortgage or car loans), must be kept current during the Chapter 13 process if you wish to avoid foreclosure or repossession of the collateral. If you have fallen behind on your secured debts, Chapter 13 can be of great assistance to you. Under the bankruptcy laws, your creditors cannot repossess or foreclose on the collateral as long as you repay the arrearages on the debt. Since you are relieved of paying your unsecured debts (in most cases) and have up to five years to accomplish this, most debtors find that the process makes it much easier to hold onto their property than it was before the bankruptcy was filed.

Speak with an attorney

Both types of consumer bankruptcies have their own strengths and weaknesses. To find out whether bankruptcy can help you with your debt situation, contact an experienced bankruptcy attorney. An attorney can recommend a course of action that would best suit your needs.

Keywords: Chapter 13, bankruptcy