9 Types of Personal Debt: What Debt Can Be Discharged (Eliminated) In A Chapter 13 Bankruptcy.
Everyone considering a Chapter 13 bankruptcy has questions about what debt will remain, what debt will go away, and what assets can be kept. Chapter 13 bankruptcy is focused on making debt repayment more manageable. It is a way for people to address an unmanageable and sometimes overwhelming amount of debt while being able to cover necessary living expenses. For many people, Chapter 13 bankruptcy is an effective way to get their financial situation in order.
There are three types of debt; secured, priority unsecured, and unsecured. A car loan is an example of a secured debt in which the vehicle is the collateral for the loan. The mortgage on your house is also secured debt. Examples of priority unsecured debt are child support and spousal support. In almost all cases, secured debt and priority unsecured debt must be repaid in full in a Chapter 13 bankruptcy filing. Some examples of unsecured debt are credit cards and medical bills. In a Chapter 13 filing this debt is repaid based on what can be reasonably afforded.
After a careful review of your debt and financial situation including income and expenses, you and your lawyer may determine that a Chapter 13 bankruptcy filing is the best thing for you to address your debt. If so, a bankruptcy plan will be developed with your lawyer and presented to the court for approval. This will include a three-to-five year plan. The plan will outline monthly projected income, necessary monthly living expenses, and payments to cover all monthly secured and priority unsecured debt. The remaining monthly income will be used to pay only the unsecured debt you can afford to pay. Remaining unsecured debt will be discharged at the end of the bankruptcy period.
Following are questions and answers for 9 types of personal debt:
1.Will I lose my house when I file for Chapter 13 bankruptcy?
In general, you can keep your house. However, you will need to make monthly mortgage payments as well as catch up on past due payments during the bankruptcy plan period. Your lender will establish a mortgage modification that includes the missed payments spread out over the three-to-five year period. You may also be able to keep your house if it is in foreclosure if you file for bankruptcy before it is sold and make monthly payments including the late payments.
2.Will I lose my retirement funds when I file for Chapter 13 bankruptcy?
In most cases you can keep the money in your pension and retirement plan funds. However, these need to be ERISA-qualified retirement accounts such as 401(k)s, IRAs, Keoghs, and defined benefit plans. Investment accounts, stock option plans and savings accounts will be covered only if they qualify under ERISA which may or may not be the case.
3.Will I lose my vehicle(s) when I file for Chapter 13 bankruptcy?
Monthly auto loan payments must continue to be paid in bankruptcy. If the payments cannot be made, the lender will repossess the vehicle.
4.Will Chapter 13 bankruptcy enable me to get rid of my medical bills?
In most cases, you will pay off a portion of your medical debt during the bankruptcy period and the remainder will be discharged at the end of bankruptcy. The amount paid will be based on the repayment plan that is established for your bankruptcy and will be based on what you can reasonably afford to pay based on income, living expenses, and secured and priority unsecured debt.
5.Will Chapter 13 bankruptcy get rid of my student loans?
Student loans typically cannot be discharged/cancelled in bankruptcy. There are rare cases, such as situations involving “undue hardship”, where student loans may be discharged. There are also certain types of loans associated with education expenses that may be dischargeable.
6.Is spousal support and child support affected by Chapter 13 bankruptcy?
The obligations for payment of spousal and child support do not change with the Chapter 13 bankruptcy filing.
7.Will my credit card debt go away if I file for Chapter 13 bankruptcy?
In most cases, you will pay off a portion of your credit card debt during the bankruptcy period and the remainder will be discharged at the end of the bankruptcy. The amount paid will be based on the repayment plan that is established for your bankruptcy and will be based on what you can reasonably afford to pay based on income, living expenses, and secured and priority unsecured debt.
8.How are federal and state taxes treated in Chapter 13 bankruptcy?
Past due taxes are usually treated as “nondischargeable priority debt”. Bankruptcy will not eliminate the tax obligations, and repayment of the tax debt is prioritized in the plan. There are, however, certain situations where taxes are considered a “dischargeable” debt that can be eliminated in the filing. This involves rules regarding the age of the tax debt, timing of tax returns and other factors.
9.How are personal loans affected in Chapter 13 bankruptcy?
Personal loans from family members, friends, and employers are all dischargeable in a Chapter 13 bankruptcy filing. In addition, unsecured bank loans, payday loans and signature loans from loan companies are also dischargeable in a filing.
If you are facing the possibility of a Chapter 7 or Chapter 13 bankruptcy filing, the chances are you are probably feeling a lot of stress and sleepless nights. If you want to start getting your financial situation in order contact Dozier Law, P.C., experienced Bankruptcy Attorneys in Rincon, Effingham County, Chatham County, Bulloch County, Screven County and Bryan County, Georgia. Your initial Bankruptcy consultation will be no charge to you.