When you meet with your Acworth bankruptcy attorney one of the first things that must be determined is whether you qualify for Chapter 7 bankruptcy. In the event you are not able to meet the means test, Chapter 13 bankruptcy is another option. This chapter of bankruptcy is commonly called reorganization because in effect, you reorganize the payments on what you owe and when the bankruptcy is ultimately discharged, any remaining balances on your unsecured debt is eliminated.
Classification of Debts
The bankruptcy code classifies the debt you owe into three categories, specifically general unsecured debt, priority unsecured debt, and secured debt. In general, secured debt includes car loans and mortgage loans. Generally these debts will not be paid off during the term of your Chapter 13, instead you will be required to continue making regular payments during and post-bankruptcy. A word of caution: Car loans are treated slightly differently under Chapter 13; if you purchased your car within two and a half years of filing bankruptcy it may have to be paid off before the bankruptcy is discharged.
Priority unsecured debts include your bankruptcy attorney fees, the Chapter 13 trustee fees and any past due child or spousal support. Income tax debts that are past due may also be included as a priority unsecured claim. These debts take priority over general unsecured debt and will include items like medical bills, credit card bills and in some cases utility bills.
Payment of Debts by Priority
Your bankruptcy plan will be based entirely on your income. This means that in nearly all cases, secured debt and unsecured priority debt must be paid in full based on the plan that is submitted to the court. Any “excess disposable income” will be put towards unsecured debt through the plan period which lasts between three and five years. Your Acworth bankruptcy attorney can help you calculate your disposable income as well as the amount that will be considered “excess” for the purposes of your Chapter 13 plan.
When your bankruptcy plan is formalized, you must pay whatever you can afford into the plan; specifically any amount of money that is considered “disposable income”. This means that after your secured debts and priority unsecured debts receive the portion of your income that is designated to them in the plan, the balance will go to unsecured debts. Once the plan is complete and your priority debts and secured debts are paid in full (per the plan) any balances remaining on your unsecured debts is eliminated through discharge and your creditors may no longer be able to collect these debts. Speak with your Acworth bankruptcy attorney to ensure that you have an understanding of what debts may still need to be paid after you file Chapter 13.
While most debtors will prefer to file Chapter 7 so they can get a clean start, Chapter 13 for many is a good way to get a handle on your existing debts and reorganize the debt so that you can make payments over a longer period of time. At the end, most unsecured debts will be eliminated if they are not paid back in the Chapter 13 plan.
If your debt has become more than you can handle on your own and you need to consider filing bankruptcy, contact Roger Ghai, a bankruptcy attorney in Acworth at the Law Offices of Roger Ghai at (770) 792-1000 for help filing bankruptcy.