A Quick Look at an Important Facet of the Chapter 13 Bankruptcy System

There are two forms of bankruptcy protection available to individuals in the United States, each of which comes with certain advantages and limitations. Chapter 7 bankruptcy is probably the better known of the pair, with the “clean slate” that comes from the dissolution of all a debtor’s obligations often appealing to those in the most difficult financial situations.

On the other hand, Chapter 13 bankruptcy regularly makes excellent sense to others, especially those who have reliable sources of income and considerable assets. As a look at the page at https://hamptonroadslawfirm.com/virginia-chapter-13-attorneys/ will show, there are some details that must be understood to make the most of this form of bankruptcy.

Three Types of Creditors, Each with Particular Rights to Repayment

Unlike Chapter 7, Chapter 13 does not require the complete liquidation of a debtor’s assets and does not provide for the immediate cancellation of debts. Instead, the bankruptcy court will work out a plan that accounts for a debtor’s obligations, assets, income, and other factors. Of particular importance is the fact that there are three distinct types of creditors recognized under bankruptcy law, each of whose claims will be treated differently:

  • Priority. Some creditors will have special status under the law and are to be repaid before any others. Overdue taxes, missed child support payments, and similar obligations will normally fall into this class. Bankruptcy courts will generally try to satisfy all of these claims in full before awarding any level of repayment to other creditors. Even in cases where a debtor’s financial situation makes this impossible, creditors with priority will often receive the lion’s share of the money available for repayment.
  • Secured. Many types of loans are secured by particular kinds of collateral, whether that might be real property like a house or other types like personal vehicles. Under bankruptcy law, the courts are charged with trying to ensure that creditors holding secured loans be repaid at least as much as the value of the associated collateral.
  • Unsecured. Finally, issuers of unsecured loans can be made to accept significantly less than the amount owed and typically will be.

Attorneys Help Clients Work Through a Difficult Process

Being able to rely upon an attorney to account for details like these will always make the Chapter 13 process much easier and simpler. Debtors who are represented by attorneys almost always fare better than those who are not.