Different types of debts are paid out in numerous ways in a Chapter 13 bankruptcy repayment plan. Bankruptcy rules classify creditor claims and necessitate the debtor to plan repayment of these different classes of claims by different means. The most familiar classes of claims in a Chapter 13 bankruptcy case are secured claims, unsecured priority claims, and general unsecured claims.
Generally, the secured claims are claims for debts that are protected by collateral security. If the debtor fails to pay a secured debt, the creditor can recover the disbursement from the debtor’s collateral security. The most common secured claims are real estate mortgages, motor vehicle loans and past due real estate taxes on a property. According to Chapter 13 bankruptcy, the secured claims have to be paid out entirely with interest. However, in certain circumstances, the claims may settle in less when the cramdown take place.
Mortgages are ongoing debts and if the debtor has arrears in payments or facing foreclosure, Chapter 13 plan allows him/her to makeup the mortgage arrears. If the debtor makes monthly mortgage payments during Chapter 13 case, he/she should continue the repayment after the expiry of Chapter 13 term. However, in certain Chapter 13 cases, the mortgage debtor does not have to settle the mortgage balance in full. Moreover, Chapter 13 has effective tools to remove second or third liens or home equity lines of creditors in certain situations.
If the debtor makes the motor vehicle loan monthly payments during the Chapter 13 plan, the debtor should pay the balance in full after the expiry of Chapter 13 term. However, the Chapter 13 cramdown provision can be exercised in certain cases. If the debtor owes more than the value of the vehicle and the transaction was 910 days in the past, and the creditor’s claim has been limited to the value of the motor vehicle plus interest of the plan; then the outstanding balance becomes an unsecured debt in debtor’s account.
If there are arrears in real estate taxes on a property and the debtor selects the Chapter 13 plan, the debtor should pay the whole overdue balance with applicable interest in the term of the plan.
The repayment of unsecured claims are dependent on the term of repayment period in Chapter 13 plan. Generally unsecured claims are paid in full through the Chapter 13 plan and it provides preference to unsecured priority debts over other unsecured debts. Income tax debts, child support arrears, spousal support arrears, past due domestic support obligations, administrative fees and Chapter 13 trustee fees are treated as unsecured priority debts. Credit card debts, personal loans, medical bills, and utilities are treated as general unsecured claims and such claims get a percentage based on the debtor’s disposable income and the value of the bankruptcy estate. Several debtors pay only a small portion of their unsecured debts through the Chapter 13 plan.