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How Do Creditors Get Paid In A Chapter 13 Bankruptcy?

Posted By admin || 29-Jul-2010

When a Chapter 13 bankruptcy plan is created there is an even number of payments required over a certain number of years. For example, a debtor may be required to make payments of $536 per month for five years via Chapter 13 bankruptcy. But just because there is an even number of payments does not mean that all creditors are paid the same amount at the same time.

Chapter 13 bankruptcy repayment plans prioritize debts with those having the highest priority receiving repayment first. Secured debts such as taxes and mortgages are priority debts and will get paid off before unsecured debts such as credit card debts and payday loans. And even if a debtor pays off one of their secured creditors first, such as delinquent taxes, that will not change how much the debtor is required to pay into the Chapter 13 bankruptcy case every month, it will only mean that the other creditors will be paid a higher amount.

For example, if a debtor pays off their taxes, then their delinquent mortgage debt may receive more money every month and eventually after it is paid off the next debt in line may receive more money every month and so on until the plan is completed.  There are some instances when a debt is split-meaning that it consists of both secured and unsecured portions.  This often happens when the property secured by the loan is worth less than the debt.

For example, if a Chapter 13 bankruptcy case consists of a vehicle with a $10,000 debt and the car is only worth $6,000, then the $4,000 portion of the loan is not secured.  Once the Chapter 13 Bankruptcy is completed, the unsecured portion of the car loan will be discharge. But if the debtor does not complete the Chapter 13 bankruptcy or misses even one payment even after the secured portion of the loan is paid they could lose that car to repossession . This is why it is so important to complete your Chapter 13 bankruptcy or convert it to Chapter 7 bankruptcy if you cannot make payments due to a change in finances.

Categories: Chapter 13 Bankruptcy
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