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Do you have to pay back everything you owe in Chapter 13?

Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcies involve a repayment plan. This means that all debts included in your bankruptcy are restructured and paid back through the trustee. Depending on what type of debt you enter the Chapter 13 with, however, you rarely pay back everything you owe.

Debt in a Chapter 13 is usually broken up into three categories: priority, secured and unsecured debt. Priority debt are those claims by creditors that are given special status under the laws that govern bankruptcy. Most priority debts have to be fully paid under your Chapter 13 bankruptcy plan or the trustee and judge won't affirm your case. Priority debts include things such as taxes owned to federal, state or local agencies and the cost of filing your bankruptcy if the attorney is rolling fees into your repayment plan.

Secured debts are those that are tied to collateral of some type. Car and home loans are secured debts, for example; the creditor has a right to take back the collateral if you don't make payments. You might have also put up items such as jewelry or electronics in exchange for secured loans. Secured debts can be paid off in bankruptcy, but the plan usually has to include payments for at least the value of the collateral if not the entire amount due the creditor.

Unsecured debts include things such as credit card balances and some medical bills. Chapter 13 plans do not have to make full repayment of these balances, but they do have to apply all "disposable income" to these balances over the course of the plan.

How much you pay creditors during a Chapter 13 depends on your income, how much and what type of debt you owe and your mandatory expenses. The forms and calculations for creating a Chapter 13 plan can be complex, which is why most people choose to work with a bankruptcy attorney when they file.

Source: FindLaw, "Chapter 13: Repayment Plan and Confirmation Hearing," accessed Jan. 26, 2017

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