Does Chapter 13 Mean Paying All Creditors Back? It Could Be Zero to Unsecured Claims!

A 13 bankruptcy repayment plan does not necessarily mean that you must repay your debts in full. Don’t be scared off by a chapter 13 bankruptcy payment plan. It does not mean you have to pay everyone back in full with interest. After all, if you could afford to pay everyone back, you would not be thinking about filing a bankruptcy.

It may mean you pay NOTHING to your general creditors, the ones without priority status or collateral. So, just how much do you have to pay back in chapter 13? The formula is simple, really.

You must pay the higher of these four tests to your unsecured claims:

1. Administrative claims–Claims include the filing fee, trustees fee, and attorney’s fees.
2. Priority claims–Claims include back child support and alimony and most federal and state taxes.
3. Best efforts test–Your “disposable income” for 36 or 60 months as calculated by the bankruptcy means test formulas.
4. Best interest of creditors test–Your creditors must receive as much as they would receive if you filed a chapter 7.

Do not let the myth that chapter 13 means paying back all your debts stop you from considering chapter 13. It is not true. Chapter 13 can be an powerful tool to manage and resolve your financial problems.