Chapter 13 Bankruptcy / Debt

How Does Chapter 13 Bankruptcy Deal with Unsecured Debt?

Chapter 13 bankruptcy is a repayment plan approved by the court.  It helps debtors repay debt obligations within 3 to 5 years.  There are certain debts that are required to be paid through this plan.  The chapter is commonly filed by those wanting to keep property such as their home or vehicle while getting caught up on payments.

Certain debts have higher priority than others in Chapter 13.  Secured debt such as a mortgage or vehicle loan are included in your repayment plan.  If you have missed payments in which you are facing foreclosure or repossession, Chapter 13 can help you make payments you missed by repaying overtime.  As long as you make these payments according to your plan you’ll be able to keep your property.

Other debts that are priority in Chapter 13 bankruptcy include back child support, spousal support or alimony and back taxes.  When a debt is a priority in bankruptcy it is required to be paid.  Unsecured debt in Chapter 13 may not be considered a priority, yet depending on the amount of disposable income you have left over you may be required to place it toward the debt.  Disposable income is what you have left over after making necessary payments.

Unsecured debt in Chapter 13 would be discharged as long as the debtor makes required payments during the repayment plan period.  Payments made to unsecured creditors depend on what you can afford, not by the amount of debt owed.

Reference: http://www.thebankruptcysite.org/legal-advice/bankruptcy/chapter-13/what-happens-unsecured-debts-chapter-13-bankruptcy-filing