How Chapter 13 Can Help If You Have Non-Qualifying Debts

One of the first things a bankruptcy lawyer will want to know is what types of debts you have. The purpose of this is to determine which branch of bankruptcy you should file for the most relief, and debts will either be qualifying debts or non-qualifying debts. If you primarily have non-qualifying debts, your lawyer will likely recommend Chapter 13 and here's why.

What Are Non-Qualifying Debts?

Debts in bankruptcy are labeled as either qualifying or non-qualifying. If they are considered qualifying debts, they can be discharged through a Chapter 7 case. Examples of qualifying debts include medical bills, credit card bills, and money owed for personal loans. If you have a lot of qualifying debts, it makes sense to use Chapter 7. If you have mostly non-qualifying debts, it makes more sense to use Chapter 13. Examples of non-qualifying debts include IRS back tax debts, student loans, alimony, and child support.

How Can Chapter 13 Help with Non-Qualifying Debts?

When it comes to non-qualifying debts, you will have to repay them in full. They cannot be discharged or eliminated at all through bankruptcy, and this is why Chapter 13 is the best choice if you want to file bankruptcy and have mostly non-qualifying debts. Through your Chapter 13 case, a lawyer will create a unique repayment plan for you. This plan will be based on your income, your debts, and your other bills and expenses. Over the course of your plan, you will slowly repay these debts, and during the plan, your creditors cannot contact you or harass you for the money you owe.

Could Chapter 7 Help?

Chapter 7 cannot help with non-qualifying debts. In fact, if you use Chapter 7 and are past-due on non-qualifying debts, you will experience no relief at all. Your creditors will continue contacting you for the money you owe, and you will not receive a discharge for these debts.

The only way Chapter 7 may help you in this situation is through relief you will receive for qualifying debts. For example, if you owe $50,000 on credit card debts, Chapter 7 would discharge these debts, leaving you owing nothing. If you could use the money, you would normally use to pay these bills each month, to pay off the non-qualifying debts, you may be able to repay them faster.

If you have mostly non-qualifying debts, using Chapter 13 could be a great way for you to become debt-free. If you would like to learn more about both branches of bankruptcy, contact a bankruptcy attorney in your area today.