If your debts are piling up with no end in sight, you’re not alone. People all across the U.S. struggle financially for many different reasons. No matter how you’ve incurred debts like credit card debts, medical expenses, mortgage delinquencies, car loans and debts following vehicle repossession, and many other kinds of secured and unsecured debts, almost all can be treated favorably and discharged completely through bankruptcy. Both Chapter 7 and Chapter 13 bankruptcy are designed to help individual consumers work through a debt relief process overseen by a bankruptcy court that remains fair to all parties involved. Behm Law Group, Ltd. can help you navigate the unfamiliar and nuanced process of bankruptcy from start to finish. Our attorneys work with individuals and businesses filing for Chapter 7 or Chapter 13 bankruptcy in St. Peter, MN and the surrounding region.
Chapter 7 bankruptcy is reserved for filers with modest household incomes (incomes below or equal to the state median/average income of a similar sized household) or a debt-to-income ratio that justifies eligibility. Chapter 13 bankruptcy, on the other hand, is a process that wage-earning individuals can qualify for who have more robust and steady incomes. Unlike Chapter 7 where debts are discharged completely within 90 to 120 days, Chapter 13 bankruptcy reorganizes debts into a three- to five-year repayment plan where the repayment terms are adjusted favorably in light of your monthly income and necessary monthly living expenses.
Chapter 13 bankruptcy addresses debts in unique ways that are beneficial to your long-term financial rehabilitative consequence. The purpose of Chapter 13 bankruptcy is for you to propose a plan of reorganization, lasting 3 to 5 years, where you make one monthly payment to a chapter 13 trustee which the chapter 13 trustee divides up among your creditors. Generally, the repayment terms of the chapter 13 plan are much more favorable to you than what you may experience outside of bankruptcy. A primary goal is to have as many of your debts, even secured debts like vehicle loans and priority debts like tax debts and child support arrearages, incorporated into your chapter 13 plan for payment by the chapter 13 trustee with the payment you make each month of your plan’s duration. How a particular debt can be treated in a chapter 13 plan depends on what kind of debt it is.
Secured Debts
Secured debts are debts that are secured by or collateralized by one of your assets. If you don’t make your monthly payments to a creditor who holds a secured debt, the creditor can take or seize the asset that operates as security or collateral for the loan. A good example is a vehicle loan. With vehicle loans, a person can do something known as “cram down” in chapter 13 bankruptcy. This is where the amount of a particular vehicle loan is reduced or crammed down to the present value of the vehicle. The interest rate of the vehicle loan can also be crammed down. For instance, presume you own a vehicle that is presently worth $5,000.00 and you presently owe $15,000.00. Presume further that the interest rate you pay outside of bankruptcy on the vehicle loan is 15%. In chapter 13 bankruptcy, rather than paying your vehicle loan payment to the creditor you simply include the loan for payment in your chapter 13 plan. Your plan could provide for a reduction of the loan from $15,000.00 to the present value of the vehicle – $5,000.00. In addition, your plan could provide for a cramdown of the interest rate that would be applied to the $5,000.00 from 15% to 5%.
Home mortgages arrearages/delinquencies are also secured debts that can be addressed favorably through chapter 13 bankruptcy. Presume that before filing chapter 13 bankruptcy, your monthly mortgage payment is $1,000.00 and presume further that you are $10,000.00 behind with your mortgage payments. Your chapter 13 plan can provide for payment of the $10,000.00 mortgage delinquency and the mortgage creditor would not be able to foreclose on your home. However, going forward throughout your chapter 13 bankruptcy plan, you would be required to continue making your regular, monthly mortgage payments. The chapter 13 trustee would only pay the pre-bankruptcy mortgage arrearage/delinquency over 3 to 5 years. If you failed to make your ongoing, regular monthly mortgage payments to your mortgage lender, the mortgage lender could get relief from your bankruptcy case and commence foreclosure proceedings against your home.
Tax Debts and Child Support Arrearages
Tax debts and child support arrearages are priority unsecured debts. Generally, these debts are not secured by or collateralized by any of your assets. They are, technically, unsecured debts. However, due to certain public policy considerations, the drafters of the bankruptcy code wanted to make these debts more difficult to discharge in bankruptcy. However, they can still be favorably treated in chapter 13 bankruptcy. The bankruptcy code requires the chapter 13 trustee to pay these debts in full. The chapter 13 trustee will pay these debts first or at the same time as the trustee pays the secured debts included in the chapter 13 plan. While the chapter 13 trustee pays these debts first, the debts are usually not paid with interest.
General Unsecured Debts
These debts are lowest on the trustee’s payment priority list and they are generally paid last and receive whatever funds are left over after the chapter 13 trustee pays secured debts, tax debts and child support arrearages. Generally, the chapter 13 trustee does not pay interest on these debts. When the term of your chapter 13 plan has concluded, whatever is left owed on these debts is completely discharged. Common unsecured debts that are only fractionally or partially paid in Chapter 13 bankruptcy include the following:
- Credit card debt: Credit cards are often a significant factor in pushing an individual to file for bankruptcy. Fortunately, they are the most easily discharged.
- Medical bills: Like credit card debt, medical bills are also a large piece in many bankruptcies but are also easily discharged. This includes medical bills incurred from uninsured medical treatments.
- Some tax debts: While most tax debts are excepted from discharge in bankruptcy, older tax obligations can be discharged, as long as the older tax debt was not incurred through fraud.
- Unsecured personal loans: Personal loans that are not secured by some kind of property can be discharged. A good example of an unsecured personal loan is a payday loan.
- Some judgment debts: If someone has sued you for breach of contract or negligent conduct and obtained a judgment against you, the debt underlying the judgment can be discharged in Chapter 13 bankruptcy. An exception to this would be debts reduced to judgment where you may have injured someone either while driving under the influence of alcohol or in a fistfight.
To learn more about how debts are handled with Chapter 13 bankruptcy in St. Peter, MN, contact Behm Law Group, Ltd. today at (507) 387-7200 or stephen@mankatobankruptcy.com.
