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How are debts treated in a Chapter 13 plan?

Chapter 13 debtors in Washington, D.C., are required to submit a repayment plan within 14 days after the bankruptcy petition is filed, unless the court extends the deadline. The plan must outline the terms and amounts of payments to be made to the trustee on a regular basis, typically monthly or biweekly.

The way creditor claims are to be treated by the payment plan depends on the type of debt that led to the claim, based on which the claim is classified as priority, secured or unsecured. Priority claims are those that are granted special legal status, such as claims arising from tax debts. The plan must usually account for payment in full of priority claims.

Secured claims are debts for which the creditor may take collateral if the debt is not paid. If the debtor wishes to keep the collateral, then the plan must account for payment to the creditor. The amount that must be paid depends on the circumstances under which the debt was incurred. In some cases, only the value of the collateral need be paid, in others it will be necessary for the debtor to pay the full amount of the debt, even if it is more than the value of the collateral.

As long as the debtor plans to pay out all disposable income for the term of the plan, unsecured claims need not be paid in full. Chapter 13 payment plans last for between three and five years, depending on the circumstances of the case. Those who have questions about Chapter 13 or the creation of a payment plan might want to consult with a bankruptcy attorney who can explain the eligibility and other requirements of Chapter 13.

Source: US Courts, "Individual Debt Adjustment", October 03, 2014

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