Priority debt
During a bankruptcy case, unsecured debt is further divided into priority debt and nonpriority debt. The classification of debt affects how bankruptcy will be treated. If you have a tax debt, for example, it will be classified as either a priority or nonpriority debt. The difference between the two is that a priority debt will be paid first. However, a nonpriority debt will be paid after a priority debt.
A priority debt is a debt that is in the public interest to pay. The debt is usually owed to government entities. Examples of priority debt are wage claims for employees, taxes, and domestic support obligations. However, some taxes may not be able to be discharged in a bankruptcy case. It is important to talk to a bankruptcy attorney if you are unsure about your tax debt.
The bankruptcy trustee will pay a priority debt in full first. This means that the creditor can’t resume collection efforts for the debt after the bankruptcy case. This is a major advantage of Chapter 13 bankruptcy. Because of the lack of ongoing tax interest, you will have more money to pay off the debt. When your case is completed, you will have a smaller amount to pay to the creditor.
Nonpriority debts are unsecured debts that are not backed by collateral. Examples of nonpriority debts include credit cards, medical debt, and other unsecured debts. If you have a plastic credit card, you can pay your debt, but you don’t guarantee that you will pay an unsecured debt. It’s important to know how to file for bankruptcy, and understand the differences between unsecured debts and priority debt.
The IRS uses the 3-2-240 Rule to determine whether a tax debt is a priority or nonpriority debt. The debt must meet two conditions. First, it must have a lien. Second, it must have been incurred within 3 years of the bankruptcy filing. However, there are special rules for other types of tax debt in Chapter 13 bankruptcy.
In Chapter 13 bankruptcy, a priority debt is usually the IRS. In addition to the IRS, other tax debts are considered priority debts. Tax debts that have a lien are considered secured debts, and a secured debt is limited to the value of the IRS lien on the property. However, a debt that is beyond the lien value will be considered unsecured.
In Chapter 13 bankruptcy, the repayment plan will be created. A repayment plan will describe how the plan will be paid, and how much will be paid to each creditor. A repayment plan will also include the amount of unsecured debt that is discharged. The court will analyze the debtor’s disposable income, after paying the necessities of life. The court will then determine how much disposable income is available for repayment. This amount will determine how much the debtor can pay in bankruptcy.
In Chapter 13 bankruptcy, most unsecured debts are classified as nonpriority debts. However, there are a few cases where the debtor will pay some of their unsecured debts through the Chapter 13 plan. This is known as a zero percent plan, and some debtors will pay all of their debt through the plan.
Secured debt
Depending on the type of bankruptcy you file, secured debt can have a different impact on your finances. Secured debt is the debt that is attached to a collateral asset, such as a car or home. When you file for Chapter 13, you can keep your collateral and avoid foreclosure, but you may need to make payments on your mortgage over the life of your plan.
Having a good understanding of secured debt can help you predict how your finances will change after bankruptcy. For example, the bankruptcy court will examine your disposable income to determine how much you can afford to pay off your debt. However, most bankruptcy filers don’t have much disposable income. This is because they have to pay off the necessities, such as food and clothing, while trying to make payments on their credit cards, car loan, and other unsecured debts. If you can make these payments, the court will allow you to keep your property. However, if you can’t afford to make payments on your secured debt, your lender can come after you for the remaining debt.
Usually, the debt that will be discharged in bankruptcy is a non-priority unsecured claim. This claim will get a pro-rata share of the value of any non-exempt property you own. It may be less than the value of the property. For example, if you own a home that is worth $100,000, your lender may be willing to accept only $200,000 in collateral as payment. However, your mortgage balance may be higher than the value of your home, in which case you will have to sell your home to repay your lender.
Unsecured debts include credit cards, medical bills, and utility bills. A Chapter 13 plan will also address these debts. In most cases, a Chapter 13 plan will allow you to pay these debts over the course of three to five years. However, some debts will need to be paid in full over the course of the plan, such as car loans. The chapter 13 plan will be tailored to your situation and needs. A bankruptcy attorney will be able to advise you on the best debt relief plan for your situation.
Secured debts are subject to different rules and limitations in Chapter 13 than in Chapter 7. A debt that has less than a year to run before the plan expires must be paid in full. The court will then consider your disposable income after paying the necessities. This may be a good way to make up some of the arrearages on your mortgage.
However, if your debt is past due, you will have to pay the normal monthly mortgage payment plus a portion of your delinquency each month. If you can’t afford to make these payments, the lender can repossess your property to recoup the debt. In addition, the bankruptcy court may reduce your loan balance to match the value of the collateral.
There are also provisions in the chapter 13 Bankruptcy Code that allow you to make up for past due balances on your home mortgage. For example, if you file a chapter 13 bankruptcy and you are behind on your mortgage, the lender will need to make up for this arrearage during the plan. The lender may also pay your loan over the course of the plan.
