If you are considering bankruptcy then one of the first decisions you will make will be whether to file Chapter 7 or Chapter 13 bankruptcy. Put simply, Chapter 7 is a liquidation bankruptcy in which many debts are erased and property is sold.
Chapter 13, on the other hand, involves reorganizing your debt and paying it off for three to five years. This plan requires you to make a monthly payment toward certain debts, some of which may be paid in full. All plans are different and the total amount you will pay back will depend on many factors. The best way to get an idea of how much you will pay back is to contact The Law Offices of Paul Y. Lee at 951-755-1000 for a free bankruptcy consultation. In the meantime, read on to find out more about how much must be paid back in a Chapter 13 bankruptcy.
How Chapter 13 bankruptcy works
First, let’s go over how the process works. The court will assign a person known as a trustee who is going to oversee your bankruptcy proceedings. One of their jobs is to take your monthly payments and distribute them to creditors based on their category. In most cases, debts will be paid in the following order:
- Secured debts. This includes anything secured by collateral. The most common example is mortgage debt, which is secured by your home.
- Priority debts. These debts are not secured by collateral but have special priority. They include things like spousal support and child support, certain tax debts, and earnings owned to employees.
- Unsecured debts. This covers all other debts such as medical debts to personal loans and of course credit card debt.
The terms of your bankruptcy will outline how these debts are paid.
You will likely have to pay back secured debts and priority debts
In almost all cases, a person who files Chapter 13 bankruptcy will be required to pay secured debts and priority debts in full – with the addition of interest. Bankruptcy proceedings classify unsecured debts as less important. Generally speaking, a creditor with an unsecured claim is not going to be paid in full but they will typically get at least how much they would have gotten if you had filed Chapter 7.
Your disposable income will need to go toward paying debts
When you are in active Chapter 13, all of the vast majority if your disposable income will need to go toward paying off your debts. You may be approved for a three-year plan, which results in lower total payments compared to the more common five-year plan.
The best way to find out what your specific options are and what you are likely to pay is to reach out to a bankruptcy attorney. You can get a free consultation by calling The Law Offices of Paul Y. Lee at 951-755-1000.
