A Chapter 13 bankruptcy is intended to help financially distressed individuals who would like to pay their debts but are currently unable to do so. The way it works is that you propose and fulfill a repayment plan, under court supervision and protection, to pay back your creditors in installments over an extended period of time, usually three years. The debts can be paid in full or in part, depending on the type of debt incurred. Generally, recent tax debts and all secured debts must be paid in full under a Chapter 13 repayment plan. Secured debts are debts in which you pledged collateral, such as your home or car, to obtain the loan from the lender. In order to keep the collateral, you’ll be obligated to pay back the debt in full. Any debt that isn’t secured by collateral, like credit cards or medical bills, can usually be paid back partially in a Chapter 13 plan. The amount of payment received by unsecured creditors will be determined by how much you can reasonably afford to pay those debts with your disposable income. The portion of unsecured debts that aren’t paid by the time your plan is completed will be discharged and creditors will not be able to collect the remaining balance once your bankruptcy is over. Be aware that there are some unsecured debts that can’t be discharged at all and must be paid in full. These debts include alimony, child support, most student loans, and criminal and fraud penalties.
