When you file a Chapter 13 there are certain debts you are required to pay 100% while you are in the Chapter 13 plan. The two categories of debts that you typically absolutely have to pay in a Chapter 13 are: 1) “Secured debts” (debts secured by collateral on which you have fallen behind and want to keep) and 2) “priority debts”.
What are priority debts? A priority debt is a category of certain debts that Congress thought was so important to be paid that you have to pay them 100% in order to be in a Chapter 13. The two most common types of priority debts required to be paid in a Chapter 13 are taxes and domestic support obligations.
Outstanding tax obligations such as IRS and state taxes are also priority debts. These are typically taxes owed for recent tax years and taxes owed for late-filed returns. The most common examples are 1040 taxes. These debts must be paid 100% through a Chapter 13 plan.
Another common type of priority debt is domestic support obligations, such as past-due child support or alimony. If these are debts are not paid while in the Chapter 13, the Attorney General will most likely ask for dismissal of the case.
So how do these priority debts typically affect a Chapter 13 plan? Say, for example, you are filing a Chapter 13 to catch-up on your mortgage to prevent foreclosure. You are behind $5,000 on your mortgage. You are behind $5,000 on child support, and you owe $8,000 to the IRS. In this hypothetical situation what would your payment be? Since a Chapter 13 plan can last for 60 months, and you are required to pay 100% of the debts listed, the payment would be at least $18,000 divided out over the 60 months ($300/month).
If you have questions about how a Chapter 13 bankruptcy works, or you would like a free consultation contact the attorneys at Fears Nachawati today! Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.