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Chapter 13 bankruptcy repayment plans

Florida residents who are considering Chapter 13 bankruptcy are sometimes confused about how their financial obligations will be consolidated into a three- to five-year repayment plan. Bankruptcy fees and most outstanding taxes are considered priority debts, and they take precedence over secured debts like car loans and mortgages. Unsecured obligations like credit cards and payday loans are factored into the repayment calculations last.

One of the persistent myths about Chapter 13 bankruptcies is that debtors are required to surrender their cars and homes. Collateralized assets like cars with outstanding loans may be kept as long as their value is covered by the repayment plan, and debtors may stay in their homes as long as the repayment plan clears any mortgage arrears.

Those who file a Chapter 13 bankruptcy are expected to dedicate all of their discretionary income toward making the required payments, and they sometimes fear that this will leave them financially vulnerable and unable to cope with an emergency. Applying for a credit card may seem to be a prudent precautionary step to take, but any new debt taken on during a Chapter 13 bankruptcy must be approved by the bankruptcy trustee. Such an approval is unlikely to be forthcoming unless it can be demonstrated that the new debt would not interfere with the debtor’s ability to meet the obligations under the repayment plan.

Attorneys with experience in this area could explain the differences between Chapter 7 and Chapter 13 and recommend a course of action to their clients based on their specific financial situations. One of the things that both chapters have in common is that debtors are required in most cases to take a credit counseling course prior to filing.

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