A Family-Owned, Family-Focused Bankruptcy Firm

How does Chapter 13 affect credit card debt?

On Behalf of | Jun 10, 2021 | Uncategorized

Credit card debt could lead someone into a difficult financial position. Lack of liquidity may force a Michigan resident to pay for medical care, rent and other expenses with “plastic.” However, when debt passes a certain point, concerns arise about paying the obligations back. Some people see no way out, so they file for bankruptcy. What happens to credit card debt after filing for Chapter 13 protection?

Chapter 13 and credit card debt

Chapter 13 bankruptcy refers to a court-approved process where a debtor takes part in a repayment plan. People may be more familiar with Chapter 7, which involves liquidating assets and discharging many debts. Some debtors do not qualify for Chapter 7, or they may not wish to liquidate assets significantly. The debtors then provide a payment plan to the court, and the court may discharge certain debts after the plan ends. Unsecured credit card debt might end up discharged depending on how the court rules.

Credit card debt falls under the heading of unsecured debt, which is not connected to collateral. Unsecured debt could face a discharge from the bankruptcy court. That is, the court may eliminate any requirement to repay the debt. Alternatively, the court might order that a portion of the unsecured debt requires repayment.

Credit card obligations and priority

Unsecured debt could be priority or non-priority. For example, unsecured debt related to taxes or child support would have priority over credit cards. Priority debts come first, which is one reason credit card obligations may face a discharge.

The courts need to rule on the acceptability of a Chapter 13 payment plan. Debtors can expect the court to review evidence of their assets and obligations before making any decisions.