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How much must a debtor pay creditors in a Chapter 13 bankruptcy?

Many people in Massachusetts who choose to file personal bankruptcy do not qualify for Chapter 7 because their income is too high. For these individuals, Chapter 13 is another option to consider. Unlike Chapter 7, in which all of the debtor's debts are eliminated, in Chapter 13 the debtor enters into a payment plan under which they repay a portion of their debt over a three or five-year period.

The Bankruptcy Code sets out the rules regarding how much must be repaid to creditors in a Chapter 13 bankruptcy. In general, secured debts -- those secured by a lien or mortgage -- and priority debt -- such as taxes and child support -- must be paid in full.

Unsecured, nonpriority debts do not have to be paid in full under Chapter 13. The Code provides that at a minimum, a general unsecured creditor should receive at least what they would have received if the debtor's non-exempt assets were liquidated in a Chapter 7 bankruptcy. If the debtor cannot pay this minimum amount, the court will not approve the plan.

A Chapter 13 unsecured creditor does not necessarily have to accept the minimum they would have received under Chapter 7. If an unsecured creditor or the trustee objects to the plan, the debtor must, over the repayment period, either pay the unsecured creditor in full or devote all of the person's disposable income -- what's left over after paying essential expenses -- to paying unsecured claims.

Chapter 13 bankruptcy is a good option for those who are earning a reasonable income but are nonetheless over their heads in debt. Although some debt must be repaid, the payments are calculated to be affordable. And at the end of the repayment period, remaining debts are discharged and the debtor gets a fresh financial start.

Source:, "11 U.S.C. § 1325," accessed July 9, 2016

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