Debts In Chapter 13

April 15, 2012 by  Filed under: Bankruptcy 

There are risks and benefits to either type of personal bankruptcy filing, but many people find Chapter 7 to be the more desirable type of case. When searching for debt elimination, Chapter 7 is your best option. However, not everyone will qualify and many people will end up filing for Chapter 13 instead.

Behind Chapter 13

Actually, filing for Chapter 13 to begin with can be the better option depending on the type of debt you carry. Even if Chapter 13 there is no guarantee that you will be liable for full debt repayment. The courts uses several factors to determine how much you will be responsible for repaying and which creditors will get paid.

In fact, not all creditors even get a chance at being repaid in Chapter 13. The reason is that the court prioritizes creditors in terms of the type of debt owed and whether or not there is any asset or collateral held against the debt. For example, mortgages and car loans are higher priority than a credit card or medical debt because they both have an asset secured against the loan, whereas a credit card or medical debt is considered to be unsecured. Secured debts are more risky due to their potential for asset liquidation or repossession, which is why they take top priority in a Chapter 13 case.

Secured vs. Unsecured Repayment

Secured debts not only take priority in a Chapter 13 case, but they also hold specific guidelines for repayment. In order to keep possession of the asset, the debtor is expected to repay the debt. However, this does not mean that the full amount owed is always repaid. The value of the property is important in calculating the repayment amount. If the value of the asset is less than the debt owed, the court may eliminate the difference and require only repayment on the value of the item. The interest rate is also important, as the court may make changes to what is owed based on the interest rate. The court can freeze or lower the interest rate on the debt, saving the debtor money in repayment fees. However, the rate can also be held steady or increased if the court feels the creditor is due more money on the delinquent debt.

Unsecured debts are treated much differently. If the creditor is to be paid anything through Chapter 13, it is typically far less than would be repaid outside of bankruptcy. The reason is that the court calculates the repayment potential based on the debtor’s disposable income, or amount of income left after all essential living expenses have been paid. Even someone who was not eligible for Chapter 7 may find that their income is insufficient for repaying unsecured creditors even in Chapter 13.

Christopher M, of Lee Law Firm, understands that financial hardships can affect honest, hard-working people. His early experience growing up in a very blue collar family in a rural area of Indiana, made a significant impression on his business philosophy today. As a child, he watched his family struggle as money didn’t come easy and his parent work hard to provide for their family. As a bankruptcy attorney in Dallas, TX his practice has given him the opportunity to directly impact the lives of many people.

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