Chapter 13 Bankruptcy
Two Requirements To Chapter 13 Bankruptcy
You must commit all of your disposable income (income not reasonably necessary for the maintenance and support of you and your family) over the next three years to repayment of debts; and
You must make payments to your unsecured creditors that equal or exceed the value of your non-exempt property. This ensures that your creditors will not be harmed by your Chapter 13 filing, because a creditor with a judgment against you is allowed to satisfy that judgment by levying upon non-exempt property.
Must I pay interest on my debts under Chapter 13 bankruptcy?
Interest on unsecured debts and loans from finance companies secured by exempt household property stops the day you file your Chapter 13 plan. You must pay interest on other secured loans.
What happens to the debts that I don’t repay?
If you complete your plan, all of your remaining debts will be discharged – except alimony and child support, income taxes (if they were due within the last three years; or if you filed a fraudulent return, failed to file a return at all, or filed a late return for an earlier year’s taxes within the last three years), student loans (unless such loans have been due and owing five years or requiring the debtor to repay would impose an undue hardship on the debtor), drunk driving liabilities, and criminal fines.
Can I choose to repay just a small portion of my debts under the plan?
In a sense, Chapter 13 is a more powerful debtor tool than straight bankruptcy because fewer debts survive a Chapter 13 plan than survive a bankruptcy filing. Some debtors might be tempted to take advantage of this by filing a Chapter 13 plan and proposing to pay only a small portion of their debts (most of which would be non dischargeable in a straight Chapter 7 bankruptcy). Bankruptcy judges look out for this little trick. In reviewing your Chapter 13 plan, they will consider which of your debts are non dischargeable in straight bankruptcy. If you have a lot of those kinds of debts and you are planning to pay only a fraction of them, you might have some problems getting your Chapter 13 plan approved.
What happens to my secured debts in Chapter 13 bankruptcy?
A “secured” debt is created when a debtor promises to pay a debt and agrees that, if the debt is not paid, the creditor may repossess a specific item of property. If the debtor wants to keep the “collateral” (the item of property that was pledged to the repayment of the loan), the debtor must pay the secured creditor either the amount of the secured debt or the present fair market value of the collateral, whichever is less.
For example, suppose you owe $8,000 on a car loan. If your car loan is a secured debt, you might lose the car if you don’t pay the $8,000. But if the fair market value of the car is only $5,000 now, you may keep the car if you pay the creditor $5,000.