What Debts Must I Pay if I file Chapter 13?

Chapter 13In a Chapter 13 bankruptcy, the debtor works out a modified repayment plan with his/her creditors and gets the plan approved by the bankruptcy court.  The purpose of the repayment plan is for the creditors to receive as much of the money they are owed as possible, but at the conclusion of the plan (which is typically between 3 to 5 years), the debtor receives a discharge of any remaining debt (i.e. the remaining debt is wiped away and the debtor is no longer responsible for paying any of it).

Many Georgians have contacted our office during the recent economic crisis to discuss the pros and cons of filing a Chapter 13 bankruptcy.  During these consultations, one of the most frequently asked questions is “What debts must be paid in a Chapter 13?”  Read on to learn more about what a Chapter 13 bankruptcy repayment plan requires.

How Chapter 13 Pays Secured Claims

In general, creditor claims fall into two broad categories: secured and unsecured.  Secured claims are debts owed to creditors that have been secured by some sort of collateral.  Outside of the bankruptcy process, if the debtor does not pay the secured claim then the creditor can take and sell the collateral in order to recoup the payment.  The best examples of a secured claim are a mortgage which is secured by the house itself, and a car loan which is secured by the car itself.

In Chapter 13, if the debtor wants to keep the property that is used as collateral for a secured claim, the debtor must pay that claim in full and with interest as part of the repayment plan.  However, if the agreement the debtor has with the creditor requires ongoing payments to be made past the life of the repayment plan (such as a mortgage that has 20 more years of payments left), usually the debtor doesn’t have to pay off the entire balance of that claim.  Rather, the debtor must make the regular payments as agreed to under the plan, and then receives a discharge of the amount remaining after the plan expires.  The reason for this discharge is that a mortgage is classified as an “ongoing debt.”

Other secured claims that are frequently involved in a Chapter 13 case include property taxes and car loan payments.

How Chapter 13 Pays Unsecured Claims

Unsecured claims have no collateral attached to them.  The bankruptcy law divides unsecured claims into the two sub-categories of unsecured priority claims and unsecured general claims.  Unsecured priority claims include past due child and spousal support, a bankruptcy attorney’s fees, and some tax debts.  Usually, the debtor must pay the unsecured priority claims in full as part of the Chapter 13 repayment plan.

Unsecured general claims are debts such as credit card bills, medical bills, and personal loans.  These types of claims typically only receive a percentage of the full amount owed and that percentage is calculated by looking at the debtor’s disposable income.  The bankruptcy court then determines what is the most the debtor can afford to pay these creditors.  Most Chapter 13 repayment plans requires that unsecured general claims receive at least as much payment as they would have if the debtor had filed Chapter 7 bankruptcy instead.

As you can see, the typical Chapter 13 repayment plan must address a large variety of claims and meet specific standards as established by the bankruptcy court. Luckily, working with an experienced Georgia bankruptcy attorney will help Chapter 13 debtors create a workable plan that will help the debtor accomplish his/her financial goals. To learn more about hiring a knowledgeable bankruptcy attorney, contact our office today at  404-913-1529. We look forward to speaking with you!