Each year, about 30 to 38 percent of all bankruptcy filings are for Chapter 13 bankruptcy. Chapter 13 provides welcome relief to people who are overwhelmed with debt and need help satisfying their creditors. If you’re in this situation, you’re probably wondering whether you’ll have to repay all your debts. It’s time to contact an experienced bankruptcy attorney. Your attorney will help you understand the two primary paths of Chapter 13 bankruptcy: repay what you can afford to repay or repay what you have to repay.
Is Chapter 13 Bankruptcy the Right Choice for Me?
Chapter 13, also known as a reorganization bankruptcy, helps you develop a budget with a detailed repayment plan to satisfy your creditors. A couple of factors, including your income and the value of your assets determine how much you have to pay back to unsecured creditors. A bankruptcy trustee, assigned by the court will establish what assets you hold, like a house, car and other property, and they will also look at your income and the total amount of your debt. Chapter 13 bankruptcy is a good choice for homeowners who are behind on house payments, because bankruptcy can halt a foreclosure and increase your chances of keeping your home. It’s also a good choice if you want to keep your car so you can get to work. Chapter 13 bankruptcy can help protect valuable assets and preserve your peace of mind.
In Chapter 13, Will I Have to Pay All My Creditors Back?
A very small percentage of debtors in Chapter 13 bankruptcies pay all of their creditors back. Most Chapter 13 repayment plans pay a small percentage of their unsecured debt. Chapter 13 bankruptcy allows you to use only discretionary income as payment, which is the amount above your basic living expenses, in your bankruptcy plan. Your debts will be prioritized according to type. Some unsecured debts that are low priority, like medical bills or credit cards usually receive cents on the dollar over the life of a plan. Balances of most unsecured debts not paid during the plan life are discharged. Debts like child support orders, student loans, and some tax debts usually can’t be cleared in bankruptcy.
What if My Income is High, But I Still Can’t Afford to Repay My Debt?
Chapter 13 bankruptcy is a great choice for someone who has a high income but is still so deeply buried in debt they can’t afford to repay it. Maybe you have extraordinarily high medical bills from a health emergency. Perhaps you have huge credit card bills that you can’t afford, even with a fairly large paycheck. Because Chapter 13 is a reorganization plan, it could help you pay down or forgive these bills while protecting your home, car and perhaps other assets.
What if I Have Very Low Income?
Chapter 13 bankruptcy can also be a good choice for people with low incomes, although you may want to explore Chapter 7 bankruptcy, too. For a low income earner, it’s difficult to have any discretionary income left after paying basic expenses. In this situation it can still be good to select Chapter 13 if you have a house or car you want to protect from a foreclosure. The automatic stay prevents further actions against you while you pursue your bankruptcy plan. Your creditors and government entities will have to wait, and this means you may be able to remain in your home and continue using your car. Consult a bankruptcy attorney to be sure of the best path forward.
Sawin & Shea – Indianapolis Bankruptcy Attorneys
Filing for bankruptcy is not the end. It’s the beginning of a new financial life for you. The Indiana bankruptcy attorneys at Sawin & Shea can help you get rid of the overwhelming debt and advise you on life after bankruptcy. We are here for you during this life-changing process. Please do not hesitate to call us today at 317-759-1483 or send an email for a free consultation. We are ready to help.
Video Transcript
Another common question that we see on a regular basis is, “Do I have to repay all my debts if I file for Chapter 13 bankruptcy?” Well, in a Chapter 13 bankruptcy generally speaking, there two different approaches. You either a) pay what you can afford to repay, or b) pay what you have to repay.
And those two differ depending upon your income and what you’re trying to accomplish in your Chapter 13 bankruptcy. What you can afford to repay is based primarily on your income vs. your expenses. So individuals that have a high income level usually end up paying more of their debts simply because they have the ability to repay their debts.
Now, sometimes that means they repay all their creditors, but in most cases that is not the case. In a Chapter 13 bankruptcy where you’re paying what you have to repay, that’s designed for individuals that are trying to stop a house that’s in foreclosure, if you’re in mortgage arrears, to pay for a vehicle at a reduced interest rate, to pay certain types of taxes. And in those types of cases, their income isn’t as important as how much debt they have to repay to resolve those issues that they want to take care of.
So if they are attempting to stop the foreclosure and to catch up the mortgage payments, we have to have enough money in the Chapter 13 bankruptcy to accomplish that goal. So when we look at plans, in most cases we’re trying to minimize or reduce the amount of money that you are repaying to unsecured creditors, creditors such as credit cards, medical bills, personal loans.
The goal in these cases is not to repay those types of creditors, but to minimize the amount you pay. I hate to say it, but in Chapter 13 bankruptcy, nobody gives you a thank you or an atta boy for paying more of your debt. Bankruptcy is bankruptcy. So if you are going to file a bankruptcy, the goal is to minimize what you repay, and to repay as little debt as possible, but still holding onto the assets you wish to maintain and keep.
