Do I Have to Pay All My Debts in a Chapter 13?

Bankruptcy, Bankruptcy Advice, Chapter 130 comments

Generally, debtors who file a Chapter 13 bankruptcy do not qualify for a Chapter 7 bankruptcy. This is because their income is too high, thus they are reverted to filing a Chapter 13 instead. If you are considering a Chapter 13 bankruptcy, surely you’ll want to know, “Will I have to pay off all of my debts?”

Each debtor’s financial situation and debt obligations are unique, so we don’t have a “one size fits all” answer to this question, but we can provide information that will offer clarity on the matter.

Under a Chapter 13 plan, you are required to pay certain creditors 100% of what you owe them, while other non-priority creditors may receive a percentage of what you owe, or they may receive nothing at all.

Priority debts receive 100% of what the debtor owes them, and these include:

  • Administrative fees for the bankruptcy, including the filing fee, attorney fees, and the trustee’s commission,
  • Mortgage defaults (if you want to keep your home),
  • Secured debts, such as auto loans (if you want to keep your vehicles),
  • Spousal support arrears,
  • Child support arrears,
  • Most state and federal tax debts,
  • Any wages, salaries or commissions that you may owe to employees, and
  • Any contributions owed toward an employee benefit fund.

What are non-priority debts?

While the above debts will have to be paid back in full over the course of your Chapter 13 bankruptcy plan, which is a 3 to 5 year period, that is not the case with “non-priority” debts.

Unsecured debts, such as medical bills, personal loans, and credit card debt are considered non-priority debts, and you pay anywhere from 0% to 100% of what you owe. What you pay towards non-priority debts has much to do with your monthly disposable income, and how long your Chapter 13 plan lasts.

You Don’t Have to Surrender Your Property

If you’re worried about handing over your property to the bankruptcy court, we have good news for you. When you file a Chapter 13, you are not required to surrender your property. Instead, you’re expected to repay your debts out of your disposable income.

In order to keep your property, you do have to pay your creditors at minimum, the value of your nonexempt property.

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