We’ve all used our credit cards from time to time for various expenses. But, over time, those balances can add up, and eventually, you can find yourself deep in credit card debt. If you cannot afford to pay off the debt, and your minimum monthly payments are too high, Chapter 13 bankruptcy can provide you some relief.
When you file Chapter 13 bankruptcy, you might not have to repay your total amount of credit card debt to creditors. That’s because you generally prioritize secured debts (like your home) over unsecured debts (like credit card bills).
To learn more about how your credit card debt gets paid during Chapter 13 bankruptcy, get more information below.
The Difference Between Secured and Unsecured Debts
In Chapter 13 bankruptcy, you will need to categorize your debts as secured and unsecured. This can vary as to what you put under each, but the general rule of thumb is a secured creditor can take the property you bought if you don’t pay off the debt, and an unsecured creditor cannot.
For example, your home mortgage lender would be a secured creditor. If you don’t pay the bill, they can put a lien on your home and they can take it from you and resell it.
Credit card debt can be an unsecured debt. Creditors are unlikely to come and ask you for the items you bought with your credit card if you fall behind in your payments. If you used your credit card to book a vacation, after you take the trip, creditors can’t just hit rewind and take the trip away from you. For that reason, your credit card charges are unsecured debts.
Prioritizing Unsecured Debts
After categorizing your debts, you then want to drill down further on your unsecured debts and prioritize them. This helps dictate which debts get paid off first under your Chapter 13 bankruptcy agreement.
Those you will want to give priority can include:
- Child and spousal support: These generally go to the top of the line for payments since your family members are relying on those funds.
- Fees incurred from your bankruptcy case: Typically paid second, these include fees you owe to your lawyer and the appointed Chapter 13 trustee.
- Owed taxes: Any federal or state taxes you owe typically get priority when repaying your debt.
After these priority debts are paid, you will then pay other, miscellaneous unsecured debts. This can include your credit card bills, as well as medical bills, student loans, utility bills, rent, membership dues, and other loans and bills.
How to Pay Unsecured Debts Under Chapter 13 Bankruptcy
When you file Chapter 13 bankruptcy, you will work out a repayment plan with the court, and you must submit the funds to a court-appointed trustee. That person will then distribute the funds to your creditors.
Your unsecured debts can get paid in the following order:
- Your priority unsecured debts will get paid first – and these must be paid in full.
- Then, any remaining funds will get distributed to your general unsecured debts. These creditors will all receive the same percentage of the balance owed.
Why You Need a Chapter 13 Bankruptcy Lawyer
As you can see, there are a lot of details that go into what credit card debt you will pay – and how much – under Chapter 13 bankruptcy. It’s essential to hire a bankruptcy lawyer to ensure you have an expert representing you and guiding you through the process to ensure your financial situation is properly presented to the court. Don’t let debt ruin your life. Call (405) 529-9377 for a free case review.