Many people find Chapter 13 confusing and counterintuitive since it is “debt reorganization” bankruptcy. The train of thought here is that they will still have to pay off every single penny of what they owe – just in a slightly different way and at a bit slower pace.
So, why would they even hire a Chapter 13 bankruptcy lawyer in San Diego and waste time going through the process, if the outcome is the same, right? Wrong! Chapter 13 carries many benefits, with the biggest one being not having to pay all debts. Let’s explore how and why!
Do you pay everything back in Chapter 13?
As a matter of fact – no! Unless you’re going for a 100% repayment plan (which carries a lot of benefits), you’re typically not obligated to pay off every debt in full. How Chapter 13 works is it allows you to create a manageable repayment plan, giving you the opportunity to fulfill your regular financial obligations while providing relief from overwhelming amounts of debt.
That being said, the specific type of debt will dictate whether or not it must be paid in full. Some debts are still considered non-dischargeable, regardless of the Chapter you choose. These are the so-called “priority debts” and typically include taxes, child support, alimony, and court fees, as well as arrears on secured debts such as mortgage or car loans.
On the flip side, we have the so-called “unsecured debts”, which encompass anything not secured by collateral. Credit card debts, medical bills, due rent, utility bills, and personal loans (among others), all fall under this category. These are the debts that do not have to be repaid in full or, in some instances, at all.
However, do note that California Bankruptcy Law states that repayment plans in Chapter 13 must prioritize “the best interest of creditors”. This means that the initial plan must be drafted in such a way that it enables the debtor to repay unsecured creditors at least as much as they would receive in Chapter 7, but without further compromising their financial situation.
“The Catch”
Now, here’s where we get to the best part of Chapter 13 bankruptcy and the one detail that works amazingly in your favor: “as much as they would receive in Chapter 7”.
The thing is that, under Ch7, most unsecured creditors are entitled to – nothing. Therefore, the majority of Chapter 13 plans do not have to include provisions to repay unsecured debt.
The only exception here occurs if the unsecured creditor objects to the repayment plan that “excludes” them – and even in this case, the debtor has the upper hand. The reason is that the debtor must have enough disposable income (i.e. funds remaining after paying for basic life necessities) to be redirected toward repaying unsecured debt.
However, in the vast majority of cases, the amount of disposable income is insufficient to repay unsecured debts in full by the end of the repayment period (e.g. 3-5 years), resulting in the discharge of most (if not all) unsecured debts and a fresh financial start for the debtor.
Where can I find a dedicated Chapter 13 bankruptcy lawyer near me in San Diego?
Located just a few blocks south of Presidio Park you can find the Bankruptcy Law Offices of Mark L. Miller – San Diego’s premier place for all things bankruptcy. Our acclaimed specialists will be there for you 24/7 to provide mindful guidance and tailor personalized strategies best suited to your unique situation.
With extensive knowledge of the subject matter and years of experience on the scene, we’re the top choice of partner to help you regain your financial independence as fast as possible. Reach out to us today and let us help you secure the stable financial future that you deserve!