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Discharging Debt Under Chapter 13 Bankruptcy

discharging-debt-chapter-13.jpgIf you have incurred a substantial amount of unsecured debt related to credit cards and medical bills, Chapter 13 bankruptcy might be a perfect solution for you. Chapter 13 bankruptcy is only available to you so long as you are petitioning as an individual, or operate a self-employed, unincorporated business. Additionally, in order to qualify, your unsecured debts must not exceed $383,175 and your secured debts, such as home mortgages and automobile loans, must be less than $1,149,525.

When filing for Chapter 13 bankruptcy, you must also have a source of income. It also requires you to pay back all or a portion of your debts over a three to five-year period. You might want to file Chapter 13 in order to keep your property. If you file for Chapter 7 bankruptcy, you usually have to surrender some property in order to cancel your debts. Chapter 13 is also a preferred method because it imposes a debt management plan on creditors, which they have no choice but to accept. This effectively stops the interest from accumulating, as well as any collection letters and phone calls.

Chapter 13 Bankruptcy, Your Debts and Their Priority

Chapter 13 is commonly referred to as 'reorganization bankruptcy.' It is defined as such because when you file for Chapter 13, you are essentially proposing a repayment plan to repay your creditors over the course of three to five years. Depending on the priority of your debt, some of your debts will be partially paid, paid in full or even some will not be paid at all.

The Bankruptcy Code divides your debt into three classes: general unsecured debt, priority unsecured debt, and secured debt. The definitions of these debts are as follows:

  • Secured debt includes automobile loans and mortgages;
  • Priority unsecured debts can and do include income tax debts and child support payments; and
  • General unsecured debts, such as medical bills and credit cards, are the lowest in priority, and are commonly subject to partial payment and in some cases, full discharge.

    Finally , Congress created exceptions to the Bankruptcy Code that prevent certain debts from being discharged; these debts can be found here.

    Determining The Cost of the Chapter 13 Repayment Plan

    Although Chapter 13 permits you to pay some debts back partially, there are some debts you are required to pay in full. You are required, under the repayment plan, to pay any secured and priority unsecured debts. Any disposable income after these payments will usually go to general unsecured debts, such as your credit card or medical bills. You are not required to pay those bills in full, but you have to show that you are attempting to put any remaining income towards repayment of those debts.

    Contact a Chapter 13 Bankruptcy Attorney

    After reading the information above, you might be hesitant to file bankruptcy because of its complex nature. However, if you are seriously considering bankruptcy, you should contact an experienced San Jose bankruptcy attorney at Diemer, Whitman & Cardosi, LLP. We will effectively evaluate your situation and provide you with the best course of action to get the debt relief you need.

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