Can I Discharge Debt with Chapter 13 Bankruptcy?
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- Can I Discharge Debt with Chapter 13 Bankruptcy?
At its heart, a Chapter 13 Bankruptcy is the reorganization of an individual’s secured and unsecured debts.
Yes you can! Although Chapter 13 Bankruptcy is a repayment bankruptcy and requires payments to be made to your creditors, you can still eliminate, or “discharge,” a significant portion of your unsecured debt through a Chapter 13 Bankruptcy!
Most debt that is not paid off through the plan is discharged if the plan is completed successfully. The amount of unsecured debt you can eliminate through a Chapter 13 Bankruptcy will be determined by several factors.
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Chapter 13 Bankruptcy is a repayment plan, but general unsecured creditors who are not paid in full lose the right to collect the balance of their debt upon the successful completion of a Chapter 13 Bankruptcy. The repayment plan lasts 36 to 60 months, and is enforced through the federal bankruptcy court and administered by a Chapter 13 Trustee. Creditors are paid according to a plan filed by the person claiming Chapter 13 Bankruptcy, and confirmed, or approved by a bankruptcy judge. After the filing of a Chapter 13 Bankruptcy, a creditor will have an opportunity to file a claim that states the amount of debt they are owed with the bankruptcy court.
Most Chapter 13 bankruptcy cases pay out less that 100% to the general unsecured creditors. General unsecured creditors include, for example, credit cards, medical bills, personal loans, utilities, payday loans and personal signature loans. If these types of debts are not paid in full by the completion of the Chapter 13 Bankruptcy plan payments, the remaining balance is eliminated, or discharged. Also, if a general unsecured creditor does not file a claim with the bankruptcy court that particular creditor or creditors will not get paid at all!
As stated previously, there are many factors that will determine how much any particular general unsecured creditor will be paid in a Chapter 13 Bankruptcy. The most common factor to determine the percent of your payment of your debt, and the percent of your debt that will be eliminated is the amount of your monthly income and expenses. Any income remaining after providing for your household necessities must be paid to your creditors. Once this income is paid over the life of your plan, the unpaid debt it is discharged.
Another factor that affects the amount of your payment through Chapter 13 is the value of your assets, including real-estate. Chapter 13 requires a debtor to pay at least as much as general unsecured creditors would have received in a Chapter 7 liquidation bankruptcy. Thus, if you own non-exempt property that could have been sold in Chapter 7, your Chapter 13 plan must provide for payment of at least that much amount of money to general unsecured creditors.
The final common factor to determine what percentage of your debt will be eliminated is your average gross income over the six months prior to filing minus certain allowable deductions, such average tax liability and expenses related to the ownership of a home or a car. This is known as the “means test” and can affect debtors whose incomes exceed the median income for a family of their size in their state. If your household makes above the average median income for the state in which you live, the percentage paid to your general unsecured creditors will be determined by the results of this “means test.” The result of the monthly means test analysis, despite your monthly budget will determine how much total must be paid back to general unsecured creditors, and hence, how much of the overall general unsecured debt can be eliminated.
Keep in mind, just because Chapter 13 Bankruptcy is a repayment plan does not mean you have to pay all of your debt! To find out if how much debt a Chapter 13 Bankruptcy would help you eliminate contact a Consumer Attorneys immediately.
Daniel Cohen is the Founder of Consumer Attorneys. Daniel manages the firm’s branding, marketing, client intake and business development efforts. Since 2017, he is a member of the National Association of Consumer Advocates and the National Consumer Law Center. Mr. Cohen is a nationally-recognized practitioner of consumer protection law. He has a we... Read more
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