Unsecured Debts and Chapter 13 Bankruptcy

Filing for bankruptcy under Chapter 13 is not taken lightly. As pointed out on the website of Erin B. Shank, P.C., you will be obliged to attend credit counseling prior to filing, but this is a good thing. It basically means that you are willing to pay off your debts but are unable to do so fully under the present circumstances. This could mean that your income is low, your interest rates are high, or you simply have too much debt.

One of the major causes of the last reason can be attributed to unsecured debts, primarily credit card debts and student loans. Under Chapter 7, most or all of credit card debt is dischargeable, which is why many people would like to (but are ineligible) to file that type of bankruptcy. Student loans are nondischargeable (except in very few exceptions) under any type of bankruptcy, but under Chapter 13 bankruptcy, it is possible to discharge a good part of your credit card debts because it is considered a nonpriority debt.

A nonpriority unsecured debt is at the bottom of the list in most repayment plans under Chapter 13. The payment to these debts is based on whatever remains of the disposable income after secured debts and priority unsecured debts (child support, student loans, etc.) are paid in full. Disposable income is the difference between your income and reasonable family maintenance and support expenses. In many cases, there is nothing left to pay for these nonpriority debts which include but are not limited to credit card debt, utility bills, personal loans with no collateral, union dues, and selected tax debts.

Determining what part of the nonpriority debt you will include in the plan will depend primarily on two things: how much the creditor would have gotten under Chapter 7; and how much your disposable income is. However, the debtor must commit all disposable income to a repayment plan for at least three years for those whose income is below the median family income of the state and up to 5 years for those who earn more than the median.

To find out more about the consequences of filing for Chapter 13 bankruptcy in Texas, talk to an experienced bankruptcy lawyer in your county.