How Does Chapter 13 Bankruptcy Help Me Pay Down Debt?

It can be difficult to erase debt that has accumulated over the years. Many people struggle with this, trying to make ends meet while they repay past-due balances in an attempt to keep collectors away. Filing for Chapter 13 bankruptcy can be a more comfortable solution. It allows people to make more affordable repayments on debt without having to surrender important assets like the home and car. Chapter 13 bankruptcy helps you pay down debt with a payment plan you can afford.

Chapter 13 bankruptcy is a way to formally reorganize debt when other attempts have failed. It was created to stop harassment from creditors, lawsuits, wage garnishment, vehicle repossession, and foreclosure–and it allows you to pay down debt. The filer consolidates, prioritizes, and repays debt using a court-managed payment plan. Some people are able to reduce or eliminate some of their debt in the process. The repayment plan consolidates all qualifying debts, making repayment more convenient.

People earning regular income who are able to pay down debt over time use Chapter 13 bankruptcy to protect their property from creditors. An automatic stay covers the three to five-year debt repayment period, enabling most people to retain their possessions and stay in their homes. Creditors may not contact a person covered by Chapter 13 bankruptcy, which provides the individual with peace of mind.

With Chapter 13, different types of debts are repaid in different ways. Creditor claims are classified as secured, unsecured priority, and general unsecured. Mortgages, car loans, and property taxes are secured claims because they are backed by collateral. These usually must be repaid in full with interest to prevent sale of the collateral to repay the debt. In some cases, the claim may be satisfied by paying less than is owed. For example, the mortgage payment plan for a mortgage term that exceeds the bankruptcy repayment plan period will continue after the bankruptcy is discharged. This “repayment plan” allows you to pay down debt and keep your home!

Unsecured priority claims are not backed by collateral by are given priority over other unsecured debts, according to the Bankruptcy Code. These claims include past due child or spousal support and certain income tax debts. They usually must be repaid in full through a Chapter 13 bankruptcy debt repayment plan.

General unsecured claims are not secured and are not considered priority. These include utilities, medical bills, personal loans, and credit card debts. Value of the bankruptcy estate and amount of disposable income determine how much will be repaid. Creditors must receive at least what they would have through a Chapter 7 bankruptcy filing but many filers only have to repay a portion of unsecured debts during Chapter 13. A chapter 13 bankruptcy attorney is much better than credit counseling or debt settlement negotiators at allowing you to pay down debt over a period of time that fits your budget to give you a fresh start.