Beginning bankruptcy proceedings under Chapter 13 can help you take back control of your financial and emotional well-being. Once proceedings have begun, most collection actions and pending foreclosures are automatically paused, giving you time to put together a plan to get yourself out of debt.
But among the various creditors you may have, which ones take precedence?
The trustee in a Chapter 13 proceeding will review the claims of creditors and determine which claims get paid first. Priority claims include debts such as the costs to administer the bankruptcy, child and spousal support and unpaid taxes. With few exceptions, priority claims must be paid in full and cannot be discharged through Chapter 13 bankruptcy proceedings.
Claims involving secured debt are typically for things like a home or a car. The creditor has an interest in the property and it stands as collateral for the debt. One of the benefits of Chapter 13 bankruptcy is that it allows for a person to keep their home or other property. But the repayment plan must include these creditors to prevent the property from being liquidated to repay the debt.
Claims involving unsecured debt are those which have no collateral behind them. Credit cards, medical bills and personal loans are all examples of unsecured debt. They receive the lowest priority among outstanding debts. Unsecured debts do not need to be paid in full. Rather, as long as the debtor pays all of their disposable income over the committed period of time, and the unsecured creditor receives as much as they would if the debtor’s assets had been liquidated, Chapter 13 is satisfied.
Serious financial problems can strike anyone. Chapter 13 may be the best option to get past those problems begin anew. If you think it may be right for you, seek the guidance of an experienced professional to help you navigate the complexities of bankruptcy.