Debt Repayment in Chapter 13 Bankruptcy

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Debt Repayment in Chapter 13 Bankruptcy – How Much Amount is to be Repaid?

Individuals who have hit on bad times can file for bankruptcy under Chapter 7 or Chapter 13 (also known as the wage earner plan). The type of bankruptcy which is most appropriate for an individual is decided via bankruptcy means test. Chapter 13 allows debtors to retain some property and make payments over a span of 3-5 years towards their debts as part of a repayment plan. This type of bankruptcy can only be chosen when an individual has some amount of disposable income and can make regular payments as per the decided repayment plan.

For debtors who consider Chapter 13 as their way out of bankruptcy, lawyers of Sacramento based law firm Recovery Law Group elaborate, the amount to be repaid depends on your monthly income, the type of debt you have (secured or unsecured) and your ability to make payments. Some debts such as student loan, taxes, etc. need to be paid while others may be discharged at the end of the repayment plan after a certain percentage of debt has been paid. The debtors have to follow the guidelines set by the bankruptcy court for repayment plans. Some examples of the guidelines include:

  • The debt is divided into categories like priority debt, secured and unsecured debt.
  • Priority debts need to be paid in full through the repayment plan. These debts include income tax, child and spousal support. If you fall behind on any payment (known as arrears), they would be paid as required.
  • Secured debts, just like priority debts, also need to be paid. The payment is made towards the obligation in defaulter with any property you wish to keep. In case you are lagging on some loans like mortgage or vehicle and you wish to keep the property, you can make payments so that you remain up-to-date on your loan.
  • Unsecured debts as the name suggests, may or may not be paid. This depends on how much amount needs to be paid in priority and secured debts. You might pay some part of the unsecured debt or nothing at all. They may get discharged at the end of the repayment plan.

If you are looking to find out more about the bankruptcy process, debt relief and the potential benefits of bankruptcy, it is important that you consult with a bankruptcy advocate soon.