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Your debts fall into 3 bankruptcy law categories.

The first category is called PRIORITY debt. The most common priority debts are income taxes incurred within 3 years of filing bankruptcy, employment taxes if you owned your own business, and past due child support and alimony. If you file a Chapter 13 debt consolidation, debts that fall into the PRIORITY class have be to be paid in full. Chapter 13 bankruptcy is a great way to deal with these type of debts, as it often stops the penalties and interest from running on the tax liability, and will protect your wages and assets from the IRS.

The second category is SECURED debt. If there is collateral for your loan, then the debt falls into the secured class. The most common secured debts are mortgages and auto loans. If you file Chapter 13 bankruptcy, all past due mortgage payments are included in your payment plan. This is a great benefit if you are behind on your mortgage, and facing foreclosure. Filing Chapter 13 will STOP the foreclosure and give you a fresh start on the house payments going forward. If you have an auto loan, that debt will be included in the Chapter 13 payment plan as well. In most cases, including your auto loan in the 13 case will decrease your overall monthly debt service. The vehicle, as with all of your assets, will be protected from your creditors.

The third category is UNSECURED debt. Unsecured debt includes credit card debt, signature loans, most finance company and payday loans, bank overdrafts, medical bills, student loan debts, and certain older income tax liabilities. Chapter 13 is a very effective way to deal with overwhelming unsecured debt. Many people are confronted with high monthly credit card payments and uninsured medical bills. These debts often end up in collection, which leads to lawsuits, wage garnishment, and harassing phone calls. When you file Chapter 13, all of these types of debt are included in your payment plane. You are only required to pay back a percentage of your unsecured debt – in most cases, that percentage is very small. This is just another way that Chapter 13 can help you solve your debt problems.

Now that you understand how your debts a little better, next week we will discuss BUDGET!

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