How does Chapter 13 Bankruptcy Help in Saving Debts?

Chapter 7 and Chapter 13 are the two most commonly provisions used by individuals in the United States to file for bankruptcy. Among these two chapters, Chapter 13 allows you to repay your debts over a period of time using money from your monthly salary. The US Bankruptcy Code lays down several provisions on how to use Chapter 13 and many of them if understood and used wisely will help save debts.

Getting a Debt Discharge Under Chapter 13

One of the greatest advantages of Chapter 13 is allowed discharge from the repayment plan. In other words it can be said that debtors can save certain debts by getting a discharge notice by the courts. Discharge in bankruptcy means that the debtor is no longer liable to pay certain kinds of debts. Under the laws, the creditor cannot take any money for any discharged item. A debtor will be granted discharge as soon as the courts find that all repayments are being made on a regular basis using the monthly income. Thus under Chapter 13, the discharge might come after four years by when the debtor would have paid some amount to the creditors.

Priority Debts and Non-Priority Unsecured Debts

A discharge doesn't happen unless you pay some amount to the creditor. Debts are largely divided into two categories - priority debts and non-priority unsecured debts. Priority debts such as alimony, recent taxes and child support have to be paid in full under all circumstances. Non-priority unsecured debts need not be paid in full or paid at all. For calculating the amount to be paid for the unsecured non-priority debts, your income and expense are calculated. However, it is always less than the outstanding debt amount that should have been paid.

When to Expect a Discharge Under Chapter 13?

Once the court identifies your priority and non-priority unsecured debts, you can expect a discharge notice on the remaining debt. Once the discharge notice is given, the creditor cannot come after you to collect the debt.

What are Priority Debts?

Long term debts, debts on alimony and child support, educational loans fall under priority debts and these have to be paid. Payments overdue due to criminal convictions are some of the other non-dischargeable or priority debts. Since Chapter 13 allows debtors to repay over a long period of time, the income and the necessary expense are calculated before any repayment plan is ordered by the courts.

Non-Priority Unsecured Debts - Really Savers under Chapter 13

If you are looking for areas where you can save your debts, the non-priority unsecured debt is something you should be studying well. The US Courts have underlined several debts that can be saved under the dischargeable debts. Credit cards, medical bills, personal loans, debts due to embezzlement or fraud, mortgage are some of non-priority debts that have a likelihood of being discharged. In all these cases, usually the outstanding balance is discharged from the repayment plan. Thus if you present your income and necessary expenditure properly, you can get a favorable discharge from the courts.

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