Macco Law Group, LLP

What types of claims are addressed via Chapter 13 bankruptcy?

What types of claims are addressed via Chapter 13 bankruptcy?

There are many reasons why a person in Long Island can fall into hard financial times. Sometimes, a person incurs expenses that they simply cannot handle. When this happens, they may consider filing for Chapter 13 bankruptcy. When a person chooses to file for Chapter 13 bankruptcy, they will need to enter into a court-approved repayment plan.

In general, there are three types of claims addressed by a Chapter 13 repayment plan. These include priority claims, secured claims and unsecured claims. Priority claims include taxes and costs associated with the bankruptcy filing. Secured claims are those that give the creditor the right to reclaim the collateral property if the person does not pay what is owed. Unsecured claims are those that do not involve any collateral.

In a Chapter 13 plan, the person, with a few exceptions, needs to pay priority claims in full. When it comes to secured claims, if the person wants to retain the collateral at issue, the Chapter 13 repayment plan needs to ensure that the creditor receives at least the amount of money that the collateral is worth. However, there are certain circumstances in which a person may need to pay back the entire amount of the collateral claim.

A Chapter 13 plan does not need to have provisions stating expressly that the entire amount of unsecured claims will be paid back, as long as there are provisions stating that the person will repay the unsecured creditors all the person’s disposable income, minus amounts needed for the person to support themselves and any dependents and minus ordinary business expenses. There also must be provisions stating that these payments will be paid during the applicable commitment period, which is dependent on the person’s monthly income and will last either three or five years. Finally, there must also be provisions stating that the creditor will get at least the same amount of money that they would have received if the person had filed for Chapter 7 bankruptcy instead and the property was liquidated.

Establishing a Chapter 13 repayment plan can be a complicated matter. It is important that each creditor’s claims are addressed, while still making sure that the person can support themselves on a fixed income. However, a Chapter 13 bankruptcy filing may be just the thing a person needs to obtain a fresh financial start.

Source: FindLaw, “Chapter 13: Repayment Plan and Confirmation Hearing,” accessed Oct. 10, 2016