How Can Creditors Protect Their Rights in a Chapter 13 Bankruptcy?

 Posted on December 08, 2021 in Creditor's Rights

When a debtor who owes money to a creditor defaults on these obligations, the creditor will have a number of options for recovering the amount that is owed. However, debtors have the option to file for bankruptcy, which will affect a creditor’s ability to collect debts. Debtors who have secured debts such as home mortgages or auto loans may pursue Chapter 13 bankruptcy, or they may use this type of bankruptcy to avoid the liquidation of certain assets. A Chapter 13 bankruptcy will create a repayment plan that will allow some of the person’s debts to be repaid over a period of three to five years. In these cases, creditors will need to be sure to understand how they can protect their rights and their ability to recover at least some of the debts that are owed.

Priority of Debts in a Chapter 13 Bankruptcy

A Chapter 13 repayment plan will be created based on a debtor’s disposable income. The amount that a person will be able to put toward their repayment plan each month will be calculated by considering all forms of income and subtracting applicable expenses, including taxes, living expenses, utilities, transportation costs, and union dues. The amount remaining will be considered disposable income that the debtor may use to make ongoing payments throughout the entirety of their repayment plan.

When determining how the amount paid through a repayment plan will be allocated between different creditors, certain types of debts will be prioritized differently. Domestic support obligations, including child support or spousal support, are given the highest priority. Secured debts will usually be given the next highest priority. Unsecured debts will be addressed after payments are applied toward other types of claims. When debts are classified into different categories, the debts within each category must be treated equally, and a plan cannot unfairly discriminate against different claims within a certain class.

After a debtor proposes a repayment plan during the bankruptcy process, this plan may be confirmed by the bankruptcy trustee. However, creditors can object to confirmation of the plan if they believe that they will be treated unfairly. These objections may be based on an incorrect valuation of the collateral in secured debts, an incorrect calculation of a debtor’s disposable income, or an understatement of the amount owed on certain debts. If a creditor will not receive sufficient payment for the debts that are owed, they may request that the plan be changed to ensure that their financial interests will be protected.

Contact Our Chicago Chapter 13 Bankruptcy Attorneys for Creditors

Dimand Walinski Law Offices, P.C. provides representation for creditors in bankruptcy and debt collection cases, and we work to protect our clients’ rights and ensure that they can recover as much of what is owed as possible. In cases where debtors file for bankruptcy, we can help creditors determine their best options for receiving the payments that are owed to them. Contact our Chicago bankruptcy and creditors’ rights lawyers today by calling 312-704-0771.

Sources:

https://www.law.cornell.edu/uscode/text/11/507

https://www.law.cornell.edu/uscode/text/11/1322