The types of claims in a Chapter 13 bankruptcy

On Behalf of | Aug 25, 2017 | personal bankruptcy |

Illinois residents who are facing financial difficulties may struggle to find a way to secure their financial future. Working overtime and additional jobs may not be enough to overcome their debts, leaving them fearful for their future. These individuals should take comfort, though, in the fact that debt relief options may be available to them. Depending on the circumstances at hand, the most effective of these options may be bankruptcy. However, before pursuing bankruptcy, an individual should understand the process as fully as possible.

For those thinking about Chapter 13 bankruptcy, which essentially restructures debt into manageable monthly payments for a period of time before debts are discharged, should know about the types of claims they must deal. First are secure claims. These are debts held by creditor, which are backed by collateral, such as a car or a home. Second are unsecure claims, which are not backed by collateral. Credit card debt is an example of unsecured debt.

Under a Chapter 13 bankruptcy plan, a debtor must fully pay off all priority claims, which are those debts that are given special status under the bankruptcy code. If a debtor wants to keep property subjected to a secure claim, then he or she must pay at least the value of the property. Depending on when the debt was acquired to secure the property in question, it may have to be paid back in full. With regard to unsecured debt, a debtor does not need to fully repay them under the Chapter 13 plan. He or she will, however, have to pay all of their disposable income toward that debt.

Successfully navigating the bankruptcy process can be challenging. Yet, failing to do so could result in unintended consequences and, perhaps, a lost opportunity at a fresh financial start. Therefore, those who want to learn more about how to better position themselves for a successful bankruptcy petition may want to discuss their situation with an experienced bankruptcy attorney.

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