What Happens To Your Debts In A Chapter 13 Bankruptcy Case?

If you want some relief from your debts but do not qualify for Chapter 7 bankruptcy, you might want to consider Chapter 13. Chapter 13 is a great choice for people with steady incomes, but it requires repaying most of the debts you owe. If you want to consider this option, you might want to learn what happens to your debts in a Chapter 13 case before filing it. Here is an explanation of what happens to a person's debts through this branch of bankruptcy.

Your Attorney Creates a Repayment Plan

The unique aspect of Chapter 13 bankruptcy is that you must repay your debts through a repayment plan. Your attorney is responsible for creating this plan, but the court must approve it before you can begin making your payments. The payment plan depends on your income and the debts you have. Your lawyer will separate your debts into categories, including priority debts. Priority debts are the first ones you must repay. If you have extra income to pay other debts, then you will also pay those. If you still have money left after that, you might have to pay some of your non-priority debts.

You Make Your Payments to the Court Trustee

Each time your payment is due, you will pay the court. You might pay on a weekly basis, or it could be different. Some people pay monthly, for example. Whenever you make the payments, you pay the court trustee, and the trustee is responsible for paying your creditors. To do this, the trustee bases the payment amounts on your repayment plan. Each time you make your payment, the trustee distributes the money to your creditors according to this plan.

The Trustee Dismisses Your Case When You Complete It

The final thing to know is that you will be caught up on your debts when you make your final payment to the trustee. At that point, you might still owe some money for your non-priority debts. If this is the case, the trustee might forgive the balances of those debts. While this does not always happen, it is typically how trustees handle debts at the end of a Chapter 13 repayment plan.

After reading this, you might have a better idea about the way Chapter 13 handles your debts. If you are interested in filing or learning more about your bankruptcy options, contact a local bankruptcy law firm, such as Ozment Law PA.