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The 3 categories of debt involved in Chapter 13

On Behalf of | Nov 12, 2020 | Bankruptcy

Many people in Arkansas and elsewhere mistakenly believe that bankruptcy results from not having any money to pay outstanding bills. However, that is not necessarily the case. In fact, many individuals with steady incomes can still need bankruptcy help because their debt exceeds their assets. In such a case, if individuals are looking to get back on track and have the income to pay back at least some of their balances, Chapter 13 may be useful.

If parties qualify for Chapter 13, they will use repayment plans that must first be approved by the court to pay back creditors. These creditors will fall into three categories, which include priority, secured and unsecured. When it comes to priority debts, these are the ones considered most important and the ones that will likely not see any reduction in the amount owed. As a result, individuals will have to pay these balances in full but will likely have a longer period of time to do it.

With secured debts, creditors typically have a claim to certain property as collateral. For instance, a mortgage lender can use the home purchased with the loan as collateral. The lender could attempt to foreclose on the property, but if a person files for Chapter 13, he or she may receive more time to catch back up with the loan before foreclosure proceedings can begin. With unsecured debt, like credit card debt, bankruptcy could help reduce the amount owed and provide more time for paying them off.

Though the idea of filing for Chapter 13 bankruptcy can certainly seem like a drastic step, it could be the one that best fits an individual’s situation. As a result, if Arkansas residents are struggling with their outstanding debt but have a steady income that they could use to repay the debt if given more time, this option could be worth looking into. Gaining applicable information from legal professionals experienced in this area of law could open doors to a brighter financial future.