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Chapter 13 bankruptcy plans for Virginia residents

Virginia residents may elect to file a Chapter 13 bankruptcy if they do not qualify for a Chapter 7 bankruptcy or they have assets such as a home that they wish to protect. With a Chapter 13 bankruptcy, the debtor files a plan with the court that specifies the frequency and amount of the payments that will be made. If this plan is approved by the court, the subsequent payments will be distributed to creditors by the bankruptcy trustee.

Creditor's claims are separated into three classes in a Chapter 13 bankruptcy. Priority claims, such as taxes and the costs of bankruptcy proceedings, are given special consideration and usually must be paid in full. The treatment of secured claims, such as mortgages or auto loans, will depend on whether or not the debtor wishes to keep the item in question and the age of the debt. If the debtor wishes to keep the item, the creditor must generally be paid back an amount at least equal to the value of the item. However, the debt may be required to be paid back in full if it was taken out shortly before the bankruptcy filing.

Unsecured debts, such as credit card or medical bills, need not be paid in full as long as certain conditions are met. The amount of the payments under the plan and the length of time that they will be paid must be deemed acceptable, and the creditors must then receive at least as much as they would have if a Chapter 7 bankruptcy had been filed.

There are a number of debt relief options available to those struggling with unmanageable bills. An experienced bankruptcy attorney could recommend one of these options after assessing the debt level, income and assets of an individual seeking a financial fresh start.

Source: United States Courts, "Individual Debt Adjustment", November 12, 2014

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