Debts—or claims as they’re called in bankruptcy—aren’t all paid in the same way in a Chapter 13 case. What you’ll have to pay will depend on whether the claim is a:
Learn how you’ll pay each of these claims as part of a repayment plan in Chapter 13 bankruptcy.
How you or the trustee will pay secured claims will depend on how long your ongoing payments will last, the rules of your court, and in some cases, whether your loan is underwater.
Secured claims are secured by collateral. For instance, a house secures most mortgages, and a car guarantees most vehicle loans.
If you don’t pay a secured debt, the creditor can take the collateral and sell it to obtain payment. If you file a Chapter 13 and intend to keep the property securing the loan, you must stay current on the payments while paying off any arrearages over the repayment plan period.
A number of factors come into play, but for the most part, you’ll continue to make payments and pay interest on these debts. Here are a few other things to know:
Mortgage debt example. Although your mortgage is a secured debt, you don’t have to pay it in full in a Chapter 13 case. You’ll make your monthly mortgage payment and continue to pay on it when your case ends. Any past due balance, however, must be paid in full through your plan. For instance, suppose your monthly mortgage payment is $1,000 and you were three months behind when you filed. You incurred $450 in interest and fees. You (or the trustee) would make the $1,000 payment and pay $3,450 (which represents the three months of arrears, plus the overdue interest, and fees) with interest over the life of the plan. To learn more about mortgage debt options, see Your Home and Mortgage in Chapter 13 Bankruptcy.
Property tax example. If you are paying past due property taxes through your Chapter 13 plan, you must pay the entire past due balance in full with interest over the life of the plan.
Car payment example. If your car loan balance becomes due before the end of your Chapter 13 plan, you must pay the balance in full over the life of your plan. How much you end up paying, however, will depend on if you qualify to cram down the loan to the amount its worth. You’ll qualify if you bought the car more than 910 days ago. You’ll pay market value plus interest through your plan and the remaining balance will get paid with general unsecured debt. Learn more in Reducing Loans and Non-Residential Mortgages in Chapter 13 (Cramdowns).
Unlike secured claims, unsecured claims aren’t backed by collateral. If you don’t pay your bill, the creditor can’t take your property.
Two types of unsecured claims exist: priority and nonpriority (general) unsecured claims.
Learn more by reading Unsecured Debt in Chapter 13: How Much Must You Pay?