Do You Have to File on Everything When You File for Chapter 13?

By Beverly Bird

Bankruptcy isn't a pick-and-choose answer to financial problems. If you owe a debt – even if it's just $50 to your Aunt Rose – the law obligates you to include it in your petition. This is true even if you file for Chapter 13. Your creditors usually receive at least some of what you owe, so you can't unfairly prejudice any of them by leaving them out.

The Chapter 13 Plan

When you contemplate filing for bankruptcy, you must take a means test to find out which chapter you qualify for. This involves determining your average monthly income over the previous six months and then subtracting your must-pay obligations, such as mortgage, car payment and groceries. If you have at least $166 left over each month, you must file for Chapter 13 and enter into a plan, lasting three to five years, to pay down what you owe. You must give your disposable income to the bankruptcy trustee every month during this period, and he uses it to satisfy the debts listed in your petition. If any portion of your debts remain unpaid at the end of the plan, these balances are discharged.

How Creditors Get Paid

The bankruptcy code sorts your creditors into categories, organizing them in an order of priority for payment. The upper tier includes debts that are not eligible for discharge, such as family support obligations and some taxes. These creditors must be paid in full. The second tier includes your secured debts, such as a mortgage or auto loan. Typically, you will continue making your current payments on these debts outside your Chapter 13 plan, as part of your regular monthly expenses. If you owe any past due balances to these creditors, they're addressed through your plan payments. Unsecured debts are last in line. These creditors don't receive anything until superior debts are paid, and they may not get all you owe, depending on the amount of disposable income you have available to fund your plan. If you borrowed $50 from your Aunt Rose, she's an unsecured creditor, and she might only receive $30 or so, if that.

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Pre-Petition Debts

Resist the temptation to pay off certain debts just before you file for bankruptcy because you don't want to include them in your petition. Bankruptcy law is firm that you can't make payment to unsecured creditors in excess of $600 during the three months before you file. If you do, the trustee can file a lawsuit to get the money back so it can be apportioned fairly among all your creditors.

After the Plan Is Completed

After your bankruptcy is over, there's no law that says you can't pay your creditors any money they did not receive as part of your Chapter 13 plan. You're free to pay your aunt, or anyone else, if it bothers you that you couldn't entirely satisfy the debt as part of your bankruptcy.

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Does Filing for Bankruptcy Stop Wage Garnishments?
 

References

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What Bills Will Bankruptcy Cover?

Bankruptcy can be a complex process because different rules apply to different types of debts. Chapter 13 cases cover some bills that Chapter 7 bankruptcies do not. Whether filing for bankruptcy will benefit you, and which chapter you should file, both depend on what bills you want to get rid of.

Is a Cosigner Safe in a Chapter 13?

If your credit is iffy, or you don't have much of a credit record, the logical step is to ask a friend or family member to cosign on a loan for you if you need financing. If you're married, it makes sense that you and your spouse will take out certain loans together. In either case, if you can't repay the debt, the person who signed with you is usually responsible for paying it instead. An exception exists if you file for Chapter 13 bankruptcy protection, however.

Can I Be Sued After Chapter 7?

If your debts have become unmanageable, you have the option to file for bankruptcy protection. Under Chapter 7 of the federal bankruptcy code, you must submit a petition in bankruptcy court. You must notify the court of creditors to whom you owe money, and list your assets on the petition. A trustee takes control of your assets, which can be liquidated (sold) to pay secured debts. During this process, you are temporarily protected from creditor lawsuits.

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