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Three types of claims in a Chapter 13 repayment plan

We write frequently on our Wayne County bankruptcy law blog about the manageable payments that Chapter 13 offers. In fact, our last post briefly discussed Chapter 13 as a way to stop foreclosure on one's home and while making payments under Chapter 13 bankruptcy. Let's look a little closer at just how a payment plan is formulated for those who are wondering if filing for Chapter 13 is right for them.

A Chapter 13 payment plan divides your debts into three categories. Those associated with some kind of property that the creditor can potentially take back if the debt goes unpaid are called "secured" claims. A mortgage is a secured claim because the bank can foreclose on your house if you don't pay. Similarly, a car can be repossessed if you default on the loan. Unlike Chapter 7, Chapter 13 allows filers to keep the property securing these claims (assuming they want to) as long as the value is paid off in the repayment plan.

Take medical debt, on the other hand. If you don't pay your bills, a hospital can't undo a procedure or take back medicine you've already taken. It's the same with credit card debt; even if you used your credit card to buy a high-end television set, for example, and then couldn't make the payments, the credit card company can't take the television set away from you. Those are called unsecured claims, and Chapter 13 bankruptcy will discharge a percentage of these.

Last but not least, there are claims like back taxes and court-ordered domestic support which are given "priority" status by the bankruptcy code. These must be repaid in full and cannot be discharged in Chapter 13. It may be possible, however, to negotiate a more favorable payment arrangement.

How much you ultimately have to pay and how much will get discharged depends on a number of factors that can be quite complex. A legal professional can be of valuable assistance in helping a filer prepare a repayment plan that will lead to a fresh financial start.

Source:, "Chapter 13: Repayment Plan and Confirmation Hearing," accessed on Sept. 19, 2014

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