Debt Repayment Plan in Chapter 13 California Bankruptcy
Among the most commonly used bankruptcy protection clauses are Chapter 13 and Chapter 7 for individuals dealing with financial difficulties. While most people usually aim for Chapter 7 when filing for bankruptcy, many of them end up qualifying only for Chapter 13 instead.
Chapter 13 bankruptcy protection allows individuals to reorganize their debts, in contrast to the liquidation done through a Chapter 7 case. For this purpose, you would need to formulate a repayment plan subject to court approval to meet your debts.
A California bankruptcy court will, however, not issue an approval of the repayment plan unless one can demonstrate that the content therein is the “best-effort” of the individual at repaying their debts to the creditors owed.
The court will thus assess your secured and unsecured debts to determine how they have been prioritized.
California bankruptcy law dictates that one should make a plan that will channel all disposable income towards the payment of the unsecured debts. Since the law also recognizes that you would need to sustain yourself and your family during the bankruptcy discharge, it allows you to divide your income to cover living expenses, upon which the rest should be used in debt repayment if filing for a Chapter 13 bankruptcy protection.
The courts will additionally subtract from your income the amounts required to repay priority debts and secured ones when assessing the disposable income available for repayment of unsecured debts.
Secured debts, by definition, comprise those that are tied to an asset while unsecured debts are those that are not.
Credit card debts, for instance, issued by health care providers, are considered unsecured and usually take the last priority in a Chapter 13 bankruptcy repayment plan. Priority unsecured debts, on the other hand, include those involving child support and government taxes among others.
The latter is usually considered as being especially crucial in formulating a repayment plan. If the bankruptcy court is satisfied with your prioritizing of these debts in your repayment plan and that what you present is your best effort, the plan will be approved and you enjoy protection from creditor actions.