This answer draws a stereotypical lawyer’s response…it depends. Unsecured debts such as medical bills are generally discharged with little or no payment; however, secured debts and certain “priority” debts must be paid in full. Priority debts, such as child support and certain types of IRS tax debt, typically will be paid in full (chapter 13) or not discharged (chapter 7).
Differences In Debt
Secured debts, such as vehicle payments and mortgages, must be paid directly to the creditor or through a plan of reorganization if you intend to keep the collateral. Secured debt usually composes the majority of a chapter 13 plan payment. Arrears on priority debts, such as past due child support, can be paid through the plan as well; however, ongoing obligations must remain current. Of particular importance in today’s economic climate, and likely the next financial crisis, student loans are not “priority” debt, not subject to discharge in most situations, and continue to accrue interest while your bankruptcy case is pending. Unfortunately student loan debt after a bankruptcy case, with accrued interest being capitalized while the case is pending, can be significantly higher than when you filed your case and depending on your individualized plan of reorganization. (As a side note, in order for student loans to be dischargeable, a debtor must prove “financial hardship” and the burden of proof extremely high. Contact your Congressperson to have this changed.)
Filing bankruptcy is not an easy process. Properly classifying the type of debt and identifying relevant deadlines related to potential discharge issues are crucial skills in maximizing the benefit of your discharge and getting your fresh start. To discuss these issues in more detail, or any other bankruptcy related matters, schedule a free consultation with one of our experienced bankruptcy attorneys today by calling 713-869-9200, emailing email@example.com, or completing the form to the right. Baker & Associations will help guide you in the right direction.
Written by Vanessa Denton.