Chapter 13 bankruptcy provides a structured way to pay back what you owe, but not all debts work the same inside the plan. Some debts must be paid in full, some get paid pennies on the dollar, and some don’t get discharged at all, regardless of how long you make payments. Before filing, you need to know which category your debt falls into.
Priority Debts: These Get Paid First, and in Full
Certain debts sit at the top of the repayment hierarchy. 11 U.S.C. § 507 designates these as priority claims, and your plan must pay them in full unless the creditor agrees otherwise. There’s no room to negotiate the amount down.
Priority debts typically include:
- Past-due federal and state income taxes (usually from the last three years).
- Child support and alimony arrears – domestic support obligations are always at the top of the list.
- Wages owed to employees if you run a business.
- Certain penalties owed to government agencies.
Back taxes deserve special attention. The IRS and the Georgia Department of Revenue file claims in bankruptcy cases, which are closely monitored. If you are behind on taxes, Chapter 13 allows you to catch up over a period of three to five years under the protection of an automatic stay, without interest or penalties continuing to accumulate outside of court proceedings.
Secured Debts: Mortgages, Car Loans, and More
A secured debt is backed by collateral, such as your house, car, or truck. If you want to keep that property, the debt becomes part of the plan. There is no choice involved.
Chapter 13 bankruptcy can help with secured debts, such as:
- Mortgage arrears: If you are behind on your mortgage payments, Chapter 13 will allow you to make up for the missed payments over a period of time while you continue to make regular monthly payments. During this time, lenders cannot foreclose on your home.
- Car loans: Your car payment will be included in the Chapter 13 plan. In some cases, if you have owned the vehicle for more than a year before filing for bankruptcy, a “cramdown” process may reduce your debt to the current market value of the car rather than the full loan amount.
- Other secured debt: Tax liens, judgments, and other types of secured debt can also be addressed through Chapter 13. Depending on the value of the asset, these debts may be stripped or modified.
If you surrender collateral instead of keeping it, the remaining balance becomes unsecured debt and is treated accordingly.
General Unsecured Debts: Credit Cards, Medical Bills, and Personal Loans
This is where most people have the most debt – and where Chapter 13 provides the most relief.
General unsecured debts are paid last, after any disposable income that remains after securing priority and securing creditors is secured. In many cases, unsecured creditors only receive a small percentage of what they are owed. What balance remains at the end of the plan is discharged entirely under 11 U.S.C. § 1328 (a). Gone legally wiped out.
Common unsecured debts addressed in Chapter 13 include:
- Credit card balances
- Medical and hospital bills
- Personal loans and cash advances
- Payday loan debt, regardless of interest rate or lender threats
- Utility bills and lease arrears from a previous residence
- Repossession deficiency balances, which are what’s owed after a vehicle has been sold at auction
How much you actually pay to these creditors depends on your disposable income, the value of your non-exempt assets, and whether any previous bankruptcy discharges affect your eligibility.
Student Loans: In the Plan, But Not Discharged
Student loans sit in a complicated middle ground. They’re classified as non-priority unsecured debt, so they go into the plan alongside credit cards and medical bills. But 11 U.S.C. § 523(a)(8) makes them non-dischargeable without a separate court proceeding.
What that means practically: during your three-to-five-year plan, collection activity stops and you get breathing room. But the full balance – minus whatever small payments the trustee has distributed to the lender – will still be there when the plan ends. Discharging student loans requires filing a separate adversary proceeding and proving “undue hardship”, a very high bar that courts rarely grant except in cases of severe disability.
For most filers, Chapter 13 buys time and reduces monthly cash pressure on student loans. It doesn’t eliminate them.
Talk to a Chapter 13 Bankruptcy Lawyer in Augusta
Every week, people in Augusta hand over their entire paycheck to creditors, but they still can’t get ahead. If you’re in that situation, Chapter 13 bankruptcy may offer you a legal way out — not just more time on the treadmill.
Duncan Bankruptcy Law specializes exclusively in bankruptcy, debt settlement and student loan law. We have filed over 10,000 cases and handled more bankruptcy filings than any other firm in Augusta. Contact us today to schedule a free consultation.
