What
kind of debt can I include in bankruptcy?
Most of your bills can be eliminated in a Chapter 7 Bankruptcy or included in a Chapter 13 repayment plan. Certain types of debt; however, are treated differently. Debts are classified in 3 distinct categories when filing for bankruptcy. These are 1. Priority Debt, 2. Secured Debt and 3. Unsecured debt.
Priority Debt
Most government debt such as back taxes, student loans and parking ticket fines, as well as child support obligations are considered to be Priority Debt. Filing Chapter 7 Bankruptcy will generally have no affect on Priority Debt, so that even after the successful conclusion of your case, that type of debt will still be collectible. Priority Debt can be included in a Chapter 13 repayment plan, but you must repay 100% of it. The benefit of a Chapter 13 simply allows you to pay it at a rate you can afford during the Bankruptcy process. There are exceptions to these rules, particularly when it comes to back taxes. For instance, income taxes that are due from at least 3 tax years prior may sometimes be wiped out in a Chapter 7 or a Chapter 13. Please consult with a lawyer at Heller & Richmond, Ltd. to learn if your income tax debt qualifies for elimination in a Bankruptcy.
Secured Debt
In the event that you put up some collateral in exchange for a loan then that debt becomes secured. Collateral can come in many forms. A house, car, jewelry, furniture, television, sound system or camcorder are just a few examples of property that is sometimes used as collateral. The money owed on a secured debt may be eliminated in a Chapter 7; however, the creditor will then have a right to claim the collateral. You may be permitted to keep the collateral, if you agree to continue paying that particular debt. That process is called a reaffirmation. The bankruptcy court will approve a reaffirmation only if the loan is up to date and you can demonstrate that you can afford to continue making the payments. This is how many people file for bankruptcy and are able to keep their home and car. Collateral may also be protected under a Chapter 13. This may be a good choice, if you are behind on your payments. In fact all late payments on a secured debt, such as a house mortgage or a car loan, may be included in the Chapter 13 plan. This means that you may pay off the late payments over the life of the Chapter 13 plan, which can run for as long as the next 5 years. So you are given that extra time to catch up on your house mortgage payment, car loan, etc. During that time the creditor will not be permitted to foreclose on your house or repossess your car, provided you continue to make all on-going payments.
Unsecured Debt
The best way to define an unsecured debt is to describe what it is not. A debt without any collateral is unsecured debt. The most common examples might be most credit card debt, medical bills and personal or payday loans. Generally, unsecured debt can be totally wiped out in a successful Chapter 7 Bankruptcy. This means those debts will be permanently excused from repayment. Chapter 13 requires only a portion of unsecured debt to be repaid, but it can be as little as 10% of the total owed. Upon completion of the Chapter 13 plan the unpaid portion of the unsecured debt will be eliminated just like in a Chapter 7.
Please consult with a lawyer at Heller & Richmond, Ltd. to determine just what benefit you might expect from either a Chapter 7 or a Chapter 13.
Phone: 312-781-6700 E-Mail: MRichmond@Hellerrichmond.com.
Most of your bills can be eliminated in a Chapter 7 Bankruptcy or included in a Chapter 13 repayment plan. Certain types of debt; however, are treated differently. Debts are classified in 3 distinct categories when filing for bankruptcy. These are 1. Priority Debt, 2. Secured Debt and 3. Unsecured debt.
Priority Debt
Most government debt such as back taxes, student loans and parking ticket fines, as well as child support obligations are considered to be Priority Debt. Filing Chapter 7 Bankruptcy will generally have no affect on Priority Debt, so that even after the successful conclusion of your case, that type of debt will still be collectible. Priority Debt can be included in a Chapter 13 repayment plan, but you must repay 100% of it. The benefit of a Chapter 13 simply allows you to pay it at a rate you can afford during the Bankruptcy process. There are exceptions to these rules, particularly when it comes to back taxes. For instance, income taxes that are due from at least 3 tax years prior may sometimes be wiped out in a Chapter 7 or a Chapter 13. Please consult with a lawyer at Heller & Richmond, Ltd. to learn if your income tax debt qualifies for elimination in a Bankruptcy.
Secured Debt
In the event that you put up some collateral in exchange for a loan then that debt becomes secured. Collateral can come in many forms. A house, car, jewelry, furniture, television, sound system or camcorder are just a few examples of property that is sometimes used as collateral. The money owed on a secured debt may be eliminated in a Chapter 7; however, the creditor will then have a right to claim the collateral. You may be permitted to keep the collateral, if you agree to continue paying that particular debt. That process is called a reaffirmation. The bankruptcy court will approve a reaffirmation only if the loan is up to date and you can demonstrate that you can afford to continue making the payments. This is how many people file for bankruptcy and are able to keep their home and car. Collateral may also be protected under a Chapter 13. This may be a good choice, if you are behind on your payments. In fact all late payments on a secured debt, such as a house mortgage or a car loan, may be included in the Chapter 13 plan. This means that you may pay off the late payments over the life of the Chapter 13 plan, which can run for as long as the next 5 years. So you are given that extra time to catch up on your house mortgage payment, car loan, etc. During that time the creditor will not be permitted to foreclose on your house or repossess your car, provided you continue to make all on-going payments.
Unsecured Debt
The best way to define an unsecured debt is to describe what it is not. A debt without any collateral is unsecured debt. The most common examples might be most credit card debt, medical bills and personal or payday loans. Generally, unsecured debt can be totally wiped out in a successful Chapter 7 Bankruptcy. This means those debts will be permanently excused from repayment. Chapter 13 requires only a portion of unsecured debt to be repaid, but it can be as little as 10% of the total owed. Upon completion of the Chapter 13 plan the unpaid portion of the unsecured debt will be eliminated just like in a Chapter 7.
Please consult with a lawyer at Heller & Richmond, Ltd. to determine just what benefit you might expect from either a Chapter 7 or a Chapter 13.
Phone: 312-781-6700 E-Mail: MRichmond@Hellerrichmond.com.