Do I Have To Pay All of My Debts In Full in a Chapter 13 Personal Reorganization?

The answer is usually no.  The amount that each debt is paid is determined on a case by case basis and in some circumstances, certain debts are not paid back at all. Instead, these debts are discharged upon completion of the case. There are many different factors that go into determining what debts must be paid. Let’s go over a few.

One major factor is your disposable income. First your household income is determined. Next, your payroll deductions are subtracted from this amount. Then, we subtract the average monthly expenses for your household. This includes utility bills, transportation costs, vehicle insurance, cell phone bills, and even things such as charitable contributions and recreation costs. Once these expenses are taken out, you are left with your “disposable income.” This is the amount that the court believes you can pay toward your personal reorganization.

Another factor is the type of debt that you owe. Certain debts are given “priority” and must be paid before others. Priority creditors include some tax liabilities, child support obligations, and secured claims that you wish to retain. A secured claim, in short, is any debt that is secured by collateral. This includes a mortgage, a financed vehicle, and any debt that you offered collateral to acquire.

Once the priority creditors are accounted for, any remaining amount of disposable income is distributed equally to your unsecured creditors. Unsecured creditors include credit cards, signature loans, pay day loans, deficiency balances on automobiles, medical bills, and a vast variety of other debts. If there is no money left over to pay any unsecured creditors, then they get nothing. That’s right, they are not paid and that debt is discharged upon completion of your plan. Furthermore, they are forbidden from contacting you at any point during your personal reorganization.

While every situation is different, there are very few financial problems that would not benefit from a personal reorganization. Whether it is to retain property, stop harassment, or to make each month’s budget more manageable, we can help! If you need financial help, please contact our office nearest to you to set up a free private and confidential consultation visit with one of our licensed attorneys.