Bankruptcy Laws & Repayment

Depending on the chapter of bankruptcy you file under, you may not have to repay some, or even all, of your debts. Or you may have to pay your debts over time according to a structured repayment plan. Certain types of debts, however, must be repaid in full regardless of which chapter of whether you file under chapter 7, 11 or 13 of the Bankruptcy Code.

Time Frame

Bankruptcy affects only the repayment of debts that existed as of the date that you filed for bankruptcy. If you file your petition for bankruptcy with the court on one day and then assume a new debt the very next day, bankruptcy will not affect that new debt. You will have to repay that new debt because you acquired the debt after you filed for bankruptcy. This is true no matter what chapter you file under.

Secured Debt

When you file for bankruptcy, be aware of the difference between secured and unsecured debt. Secured debt is any obligation that is linked to an identifiable piece of property, while unsecured debt is any other type of obligation. Automobile loans and mortgage loans are the two most common types of secured debt. Secured debts give the lender a lien on the secured property. An automobile lender has a lien on your car, which means the lender can take your car if you don't repay your debt. Bankruptcy does not generally discharge liens, which means you must repay secured debts or you may lose the secure property when the lender exercises its right to repossess or foreclose on the lien. Credit card loans, installment loans, medical bills and personal and student loans are common types of unsecured debt.

Structured Repayment

Chapters 11 and 13 of the Bankruptcy Code allow you to file for bankruptcy in order to prepare a structured debt repayment plan. Chapter 11 is a much more complicated way to create a repayment plan, while Chapter 13 is much simpler. Generally, a Chapter 13 repayment plan will extend for three or five years, and you will be expected to use all of your disposable income toward the repayment of debt during that time. At the end of the three- or five-year plan, all of your debts will be discharged, meaning you will not have to repay them even if a balance exists after your structured repayment plan expires.

Chapter 7 Discharge

Unlike chapters 11 and 13, Chapter 7 does not involve a structured debt repayment plan. Instead, the general rule is that any debts you had as of the date you first filed for Chapter 7 will be discharged at the end of your Chapter 7 bankruptcy. Discharge means you have no legal obligation to repay the debt. The debt discharge in Chapter 7 applies to all debts other than student loans; familial obligations like maintenance, alimony and child support; and some types of tax-related obligations.

References

• "The New Bankruptcy: Will It Work For You?"; Stephen Elias; 2009
• U.S. Courts: Bankruptcy Basics