Debts That Must Be Paid in Chapter 13 Bankruptcy

Learn what happens to secured and unsecured debts in Chapter 13 bankruptcy, including how much you'll pay. Here are the details.

By , Attorney · University of the Pacific McGeorge School of Law

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:

  • secured claim (like a mortgage or car payment)
  • unsecured priority claim (such as recent tax debt or support arrearages), or
  • general unsecured claim (credit card balances, medical bills, and the like).

Learn how you'll pay each of these claims as part of a repayment plan in Chapter 13 bankruptcy.

Understanding Secured Claims

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.

What Happens to Secured Debt in Chapter 13 Bankruptcy?

Several factors come into play, but for the most part, you'll continue to make payments and pay interest on secured claims or debts. Here are a few other things to know:

  • You don't have to pay the debt in full if your payments normally last longer than the plan period (for instance, most mortgages).
  • You might be able to pay less than what you owe on your car or other property in a cramdown.
  • You might be able to wipe out a junior mortgage (such as a second) by stripping a lien.
  • You'll have to catch up on arrearages in the plan.

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. However, how much you pay will depend on if you qualify to cram down the loan to the amount it's 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).

What Happens to Unsecured Debt in Chapter 13 Bankruptcy?

Unlike secured claims, unsecured claims or debts aren't backed by collateral. The creditor can't take your property if you don't pay your bill.

Two types of unsecured claims exist: priority and nonpriority (general) unsecured claims.

  • Priority unsecured claims. These claims aren't guaranteed with collateral, but they're considered important enough to pay them before nonpriority unsecured claims under bankruptcy law. You can't discharge priority claims in Chapter 7 or 13, and you must pay them in full through the Chapter 13 plan. Unsecured priority debts include recent income tax debts, past due child support, past due spousal support and other past due domestic support obligations. Also included are administrative expenses.
  • Nonpriority unsecured claims. If the claim doesn't fall into another category, it's a general unsecured claim. Credit card debts, personal loans, medical bills, and utilities are the most common. General unsecured claims receive a percentage pro rata share of whatever remains after other qualified debt gets paid, called disposable income, or the value of the property you can't protect (exempt) with a bankruptcy exemption—whichever is greater. Many Chapter 13 debtors pay only a small portion of their unsecured debts through the Chapter 13 plan. However, some pay all debt owed in a 100% plan or nothing in a zero percent plan.

Learn more in Unsecured Debt in Chapter 13: How Much Must You Pay?

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