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Understanding the types of debt

Debts included in the plan include priority, secured and unsecured debts. Priority debts are given special status and include the costs of the bankruptcy and taxes. Secured debts include those which are backed by property or collateral and unsecured claims are those which are not backed by collateral or property which can be repossessed to pay the debt obligation.

Creditors who wish to receive payment for outstanding debts must file a Proof of Claim. Objections can be made by the debtor to the creditor claims. Creditors must respond to objections within 30 days in writing and if they do not, the claim is modified according to the objection or rejected. Judges may hold hearings to review the creditor responses, and the debt is considered valid unless the debtor can provide proof to discredit the claim.

What debts must be paid under the bankruptcy repayment plan?

  • Administrative Expenses –Administrative expenses include money owed to a non-creditor for the administration of the bankruptcy case. These obligations are paid first and include payment for the trustee (3% to 10) and the bankruptcy attorney.
  • Priority Creditors – Although priority creditors do not have secured interest to the debtor’s property, they are paid in full. Prior child support and spousal support, certain tax debts, wages, commissions, salaries, and contributions to employment benefit plans can all be considered priority debts.
  • Secured Creditors – Secured debts include debts backed by collateral or property: home equity loans, loans for personal property and home mortgages. Other debts which must be paid include statutory liens, judicial liens, and tax liens. The Chapter 13 debtor must either surrender the collateral or property back to the secured creditor, or they can repay the secured debt over the life of the plan.
  • Unsecured Creditors – Unsecured creditors do not have a security interest or collateral that they can repossess for debt payments. Unsecured debts include debts for medical bills, credit card debts, and certain unsecured personal loans. Unsecured creditors are paid after all other creditors are paid, and they are rarely paid in full. After the repayment plan is completed, any balances not paid in the plan are discharged.

The Chapter 13 Bankruptcy plan must be created and proposed in “good faith.” It also must be in the best interest of the creditors, giving unsecured creditors as much money as they would have received if the debtor had filed a Chapter 7 Bankruptcy. The Chapter 13 Bankruptcy plan must also provide full payment of priority claims and payment for the value of other secured claims.

More Help on Debts addressed in the Chapter 13 Repayment Plan

  • Chapter 13 Repayment Plan - The Chapter 13 Bankruptcy Repayment Plan can be quite confusing when you are unsure of the details. Here we highlight some of the major questions and topics regarding the Chapter 13 Repayment Plan - read more

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