Chapter 13 Bankruptcy allows a debtor to reorganize secured and priority debts and in most cases discharge any unsecured debt. Many Debtors believe a Chapter 13 reorganization plan means they will have to pay back unsecured  debts. This is rarely true. In fact, most debtors will discharge all of their unsecured debt in a Chapter 13 plan, and will only pay for secured and priority debts. 

Reorganizing means a debtor proposes a plan to the court to pay off certain debts within 3 to 5 years. Debtors often benefit from much lower interest rates on secured debts in the range of 4-5%. For example, if a debtor has a high interest auto loan at 25%, the debtor could propose a plan paying 4% interest on the loan, saving thousands of dollars in interest over the life of the bankruptcy plan.

Secured types of debt commonly included in a Chapter 13 Bankruptcy Plan are:

• arrearages or late payments on a home

• auto loans and motorcycle loans

 • trailer loans

• home furnishing accounts 

• tax liens

Priority debts commonly included in a Chapter 13 Bankruptcy Plan may be:

• state or federal taxes

• child support, and alimony

Chapter 13 bankruptcy provides instant and automatic protection from creditors the moment it is filed. This means all collection related garnishments, tax levies, phone calls, letters, or other creditor harassment must immediately stop upon filing pursuant to the automatic stay in section 362 of the Bankruptcy Code.  The automatic stay also stops repossessions, foreclosures, evictions, attachments, and utility shutoffs.  It offers debtors very strong protection and  creditors cannot take any further action against the debtor or the property without permission from the bankruptcy court.

In Chapter 13 cases where a debtor is required to pay back a portion of their unsecured debt are typically in cases where the Debtor has "disposable monthly income" or is seeking to keep an asset that that is not exempt.  An experienced bankruptcy attorney at the Law Firm of Morrison & Murff can help you determine what your monthly payment will be in a Chapter 13 Bankruptcy Case so you can make an informed and educated decision to determine if it is right for you.