Even the most financially stable individuals can face financial hardship. Sometimes the slow accumulation of debt can contribute to financial uncertainty, but so, too, can the sudden onset of unexpected expenses. Oftentimes, individuals who have to turn to credit cards to get by, whether due to a low paying job, a lost job, or sudden medical expenses. In other instances they have to seek out personal loans or simply fail to pay debts owed.
In these circumstances, personal bankruptcy may be the best way to secure a fresh financial start. Chapter 13 bankruptcy allows an individual to keep his or her assets so long as he or she adheres to the terms of a repayment plan. Once that plan is complete, remaining debts may be discharged. But which creditors get paid in this process?
Priority claims, which are those that are given special status under the law, must be repaid during a Chapter 13 bankruptcy. These debts often include taxes and child support.
Secured claims are debts that are backed by collateral. If the bankruptcy petitioner hopes to keep the collateral, then he or she must typically repay the debt at least to the value of the underlying collateral. In some instances when the debt is used to purchase the collateral, such as a car loan, the full amount of the secured claim may have to be paid back.
Unsecured claims are those that aren’t backed by collateral, such as credit card debt. These claims don’t have to be fully repaid in a Chapter 13 bankruptcy so long as the bankruptcy petitioner contributes all disposable income to the debt over the course of the repayment plan. Additionally, these unsecured creditors must also be able to recover the same amount of money as they would if the debtor pursued a Chapter 7 bankruptcy.
Depending on the facts at hand, there may be legal arguments that can be made to minimize the debts that need to be repaid during the course of bankruptcy. Although the process often has a negative association, it can provide true debt relief to those in need. Thus, those who are interested in learning more about Chapter 13 bankruptcy may want to reach out to a legal professional who is experienced in this area of the law.