Debts That Must Be Paid In Full
Here is another minimum payment-setting requirement: Certain debts must be provided for and paid 100% during the Chapter 13 plan term.
These are known as “Priority Claims” set forth in Section 507 of the Bankruptcy Code.
Some (but not all) of these include certain taxes (particularly those which came due within 3 years prior to filing the case), past due domestic support obligations, certain wages owed to employees, and a few other less common ones.
Additionally, Chapter 13 is often used to catch up on mortgage and other secured debt payments.
In such cases, the Plan must pay those arrearage amounts in full within the plan term of 36-60 months.
How You Can Discharge Your Debts And End Up Paying Nothing To Unsecured Creditors
Those of you paying attention may have figured out how one can make payments in a Chapter 13 and pay zero percent to unsecured creditors.
It is a function of all the above criteria.
Let’s say you owe about $150,000 to various credit cards and other unsecured creditors.
Let’s then say your bankruptcy budget above shows you have $400 per month you can afford to pay to your creditors.
Let’s also say you do not have any non-exempt assets, so there’s no liquidation test issues.
Finally, let’s say you are behind by $20,000 on your mortgage payments and are using Chapter 13 to stop a foreclosure and catch up on those payments.
In this case, you can do a 60-month repayment plan to cure your mortgage arrears, and at the end you will be discharged from all your unsecured creditors without paying them anything!
($400 x 60=$24,000. This leaves $4,000 for the Trustee’s fees and possibly some of your attorney’s fees if paid through the Plan)
That’s a pretty good deal. Certainly better than you can do outside of bankruptcy.
The Chapter 11 Repayment Plan
Chapter 11 can also be used to structure a repayment plan to creditors.
However, it is much more involved and one big difference between Chapter 11 and Chapter 13 is that in Chapter 11 your creditors get to VOTE for, or against, the plan you propose.
On the other hand, Chapter 11 gives a bit more flexibility in terms of how long you can repay certain debts (like mortgage arrearages), as long as the creditors and court approve it.
People also use Chapter 11 when their debt amounts exceed the Chapter 13 debt limits.
Going through an analysis of Chapter 11 here would make this article too long, so I mention it here so you know it exists and is available.
Always Consider Other Bankruptcy Options
In summary, bankruptcy law provides many different options for dealing with your debts.
There is a lot of flexibility depending on your situation–what assets you have, your ability to make payments, and the types of debts with which you are dealing.
The only way to discover your options is to have a comprehensive consultation with an experienced bankruptcy attorney in your area.
Contact a bankruptcy attorney today to learn about your options.