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How Unsecured Debts Are Analyzed Under Chapter 13 Bankruptcy

yellow sticky note with "chapter 13" written on it


By:Mike Cibik


How Unsecured Debts Are Analyzed Under Chapter 13 Bankruptcy


Debts are a liability and the earlier you can do away with them, the better. When you do not have enough resources to pay off your debts, look for ways that give you time to repay rather than ignoring the issue. Bankruptcy can be that solution.


At the same time, filing for bankruptcy does not in any way mean that you will be free of your debt in an instant, or that all your troubles are done and dusted. Yet, it will guide you into repaying in such a way that it will not hurt.


A common loan form that many individuals opt for is unsecured loans. You should know more about how Chapter 13 treats bankruptcy unsecured loans so that you can utilize it to pay off your loan.


Finding the priority debts under chapter 13


Unsecured debt is the loan taken without securing your property. That means the creditors cannot use your property to get their money.  


Under chapter 13, there are some types of unsecured loans that you have to pay in full. Chapter 13 categorizes unsecured loans into two segments, priority claims and non-priority claims.


Priority loans: Child and spousal support is a priority debt which has to be paid in full and that too on priority. The other expenses that are included in this category are administrative expenses.


It includes the charges that you owe to chapter 13 trustee and your counsel. Different taxes are also referred to as priority debts.


Non-priority debts: If you do not owe any of the above loans, you can heave a sigh of relief, because most of the unsecured loans come under non-priority debts. Examples are your credit card payment, student loans, medical expenses, back rent, utility bill payment, etc.


If you have both kinds of debts, then you will have to pay the priority loan first and then the general debts. Priority loans have to be paid in all circumstances, so you need to take that also into account when you are applying for bankruptcy and also while deciding on the payment plan of the court.


Payment of unsecured loan


The court will decide on the clauses of your payment after evaluating your disposable income. This amount is calculated after deducting the expenses you need to maintain a basic lifestyle.


The difference between your earning and your basic expenses is what is referred to as disposable income. Once your priority loan is paid off, you may have to pay only a part of your unsecured loan. In some cases, it might be just 5-10% while in some cases, it can even be nil.


You get a payment plan, once you confirm that you commit your disposable income to pay off the debt for a time period. It could be three to five years.


The court uses a ‘means test’ to find your disposable income. You will have to provide all your income-related information to the court when you file for bankruptcy.


The court considers a six-month period income. The amount calculated is regarded as your average income. This amount is compared to the average income of those similar to your household size.


During the course of chapter 13, if your total earning is less than the average family income in the state, your payment period will be three years. In this case, your creditors will get the remaining percentage of your income at the time.


If it is more, then you get five years’ time to pay off the outstanding loan. The court will also calculate a monthly amount that is multiplied by 60. This is the amount that will be paid off to your creditors over the payment plan.


You should speak to a bankruptcy lawyer to find if there are any more ways you can get a reduction in the payment or if you can get the loan discharged. The attorney can even guide you in requesting an amendment or changes in your payment plan in case your income dips, or you have to incur additional expenses later on.


Before you take any decisions regarding bankruptcy, it is vital that you speak to your lawyer about the do’s and don’ts as it will enable you to take an informed decision. This will help you in taking care of your financial woes and beginning a new chapter in your life.


Contact Us Today!

If you are looking for more information on chapter 13, Cibik & Cataldo P.C, is here to help. For 35 years we have provided superior debt-relief services to clients all throughout Pennsylvania. Call us today at 215-735-1060 to speak to one of our bankruptcy experts.  


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