If you have reviewed your debt relief options and have decided that you want to repay as much debt as you can and keep your assets, then Chapter 13 is likely going to be your best option. This plan gives people the tools they need to reorganize debt and establish a plan with creditors to repay some or all debt over time.
This process requires reprioritization, as all debts in Chapter 13 are not necessarily created equal. Some are a higher priority than others are, which affects when and how much of the debt will be paid off. Below are the three different types of claims for repayment.
- Priority claims: These are the highest priority claims, and they will generally need to be repaid in full over the next three to five years. Priority claims can include recent back taxes, child or spousal support payments, unpaid wages to employees and a variety of legal fees and obligations, including the cost of the bankruptcy proceedings.
- Secured claims: If a creditor can take back property that you used as collateral to secure a debt, then this would be a secured claim. If you want to keep the collateral, you need to pay enough of the debt to cover the cost of the collateral. Whether the debt needs to be repaid in full depends on the specific claim, and repayment may take longer than the bankruptcy repayment schedule.
- Unsecured claims: Debts not secured with any type of property are unsecured debts. Credit cards, medical bills and personal loans are all typically categorized as unsecured claims. These claims may not be repaid in full, as long as you pay as much as you can with disposable income over an appropriate amount of time.
This information should help you understand how your debts will be reorganized if you pursue Chapter 13 bankruptcy protection.
There are various advantages to repaying debt versus having them discharged in Chapter 7, but it is not the right solution for every person in every situation. In order to learn more about Chapter 13, you can discuss this and other options with an attorney familiar with all types of debt relief solutions.