Not all debts are treated equally in Chapter 13 bankruptcy. In general, how much you pay towards nonpriority unsecured debts (such as credit cards and medical bills) in your repayment plan depends on your disposable income and amount of nonexempt property. But you must pay off certain obligations in full through your repayment plan regardless of your income and assets. Read on to learn more about which debts you must pay back in full through your Chapter 13 plan.
For more information on how to calculate your Chapter 13 plan payment, see our topic area on The Chapter 13 Repayment Plan.
Certain obligations (called priority debts) receive special treatment in bankruptcy. Priority debts can’t be discharged (eliminated) by filing for bankruptcy. If you have priority obligations, you must pay them off in full through your Chapter 13 repayment plan. In most cases, Chapter 13 bankruptcy provides debtors a convenient and affordable way to pay off their priority debts over a three- to five-year period. But if you have a significant amount of priority debts, your monthly plan payment must be large enough to pay them off within five years.
The most common examples of priority debts include certain tax debts and domestic support obligations such as alimony or child support. (For detailed information on which debts are considered priority in bankruptcy, see Priority v. Nonpriority Claims in Bankruptcy.)
If you are behind on your mortgage payments and want to keep your house, you must pay off your mortgage arrears through your repayment plan. This is one of the most common debts paid through a repayment plan because many debtors file for Chapter 13 bankruptcy to catch up on missed mortgage payments and save their home. But keep in mind that you must continue to make your ongoing mortgage payments to your lender while catching up on your arrears through your plan.
If you don’t plan on keeping your house, you don’t have to include your mortgage arrears in your plan. Also, if you have a second mortgage or other junior lien on your house that you plan to eliminate through lien stripping, you don’t have to pay off the arrears on that loan.
Car Loans and Other Secured Debts
Whether you must pay off your car loan or other secured debts through your Chapter 13 plan depends on the rules in your jurisdiction. If you want to keep your car, some bankruptcy courts will allow you to continue making payments directly to your lender outside of bankruptcy while others may require you to pay off your car loan through your repayment plan.
If you are behind on your car loan payments or want to reduce your loan balance through a cramdown, you must include your car loan in your repayment plan.
The appointed bankruptcy trustee receives a portion of your plan payment (up to 10%) as compensation for administering your case and distributing payments to your creditors. In addition, if you hired an attorney to file your case, chances are you agreed to pay a portion of the attorneys' fees upfront and the remainder through your repayment plan. Administrative claims such as trustee commissions and attorneys' fees will be paid out of your payments over the life of your plan.