People who are overwhelmed with debt often have questions about the differences between Chapter 7 and Chapter 13 bankruptcy. While Chapter 7 bankruptcy petitions are often appropriate for those with large amounts of unsecured debts, a bankruptcy attorney in Indianapolis may recommend Chapter 13 for others, especially if they have secured debts and priority claims for which they owe money but need more time to pay.
Different Types of Claims and Chapter 13 Bankruptcy
Chapter 13 involves a reorganization of debt and a repayment plan lasting between 3 and 5 years. Unlike Chapter 7, in which most unsecured debts are discharged after a few months, the discharge in Chapter 13 will not occur until the end of the repayment plan period. Reasons why Chapter 13 may be a better choice involve how certain types of creditor claims are handled, as an attorney in Indianapolis will explain.
1. Priority Claims
Priority claims are a type of unsecured claim that the government has deemed to be non-dischargeable through bankruptcy as a matter of public policy. This includes tax debts, alimony and child support, personal injury awards due to intoxicated drivers, penalties owed to the government and others. With Chapter 13, people may extend their time to repay these claims in full over the life of their repayment plan. These debts are ones that would not be discharged in Chapter 7, so people who owe a significant amount may have more protection through Chapter 13.
2. Unsecured Claims
The amount of money that will be repaid to unsecured creditors who do not have priority claims is normally quite minimal in Chapter 13 bankruptcy plans. The total amount of the monthly payments will first go towards paying the secured claims and the priority claims, with any remaining amount being divided among unsecured creditors. At the end of the repayment plan, remaining amounts owed to unsecured creditors will be discharged.
3. Secured Claims
Creditors holding a secured interest in property also will have priority in Chapter 13 for repayment. This chapter can be a good choice for people who are facing foreclosure or who are behind on their mortgages, as they will have the life of the repayment plan to catch up the back amount owed.
Individuals who have questions about the type of bankruptcy petition to choose should consult with a bankruptcy attorney, such as Michael Jeffries of Jeffries Law, to learn more.
(What is a Priority Claim in Chapter 13 Bankruptcy?, nolo.com)
(Understanding Secured, Unsecured, and Priority Debts in Bankruptcy, alllaw.com)