Bankruptcy can be scary. It is a legal process that carries with it a lot of misconceptions and wrong ideas. Washington residents who have heard about personal bankruptcy may know that it is intended to alleviate their debts but may not know what steps they must take to pursue it.
There are two main forms of personal bankruptcy, and one of them is Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, which involves the liquidation of a debtor’s assets, Chapter 13 uses a debtor’s existing income to repay creditors. Without providing legal advice or counsel, this post will examine the repayment plan requirement of Chapter 13 bankruptcy.
Which creditors must be repaid under Chapter 13 bankruptcy?
Creditors can be classified into 3 different categories: priority, secured, and unsecured. Priority creditors are those whose debts are government-based, like unpaid taxes. Secured creditors are those whose loans are secured by collateral, such as a home on a mortgage. Unsecured creditors are those who issued personal unsecured loans to debtors.
Repayment plans must include provisions to repay priority creditors in full. If debtors want to keep their property secured by secured debts, then they must repay those creditors or continue to keep up with their regular payment schedules. Any money left over must be used to repay unsecured creditors, who may not be fully paid off through a repayment plan.
How much income must go to the repayment plan?
A debtor must have some disposable income after their expenses are paid to use Chapter 13 bankruptcy. If they do not, they may have to use Chapter 7 bankruptcy to eliminate their debts. A court will approve a debtor’s repayment plan before it is accepted and put into action.
Bankruptcy does not have to be overwhelming or scary. A debtor can choose to educate themselves about the process with the assistance of a knowledgeable Washington-based bankruptcy attorney. The process may be long, but debtors who have their obligations discharged can find financial freedom on the over side of their bankruptcy proceedings.