If I Paid Off My Car, Will My Chapter 13 Plan Payment Decrease?

by Susanne Robicsek, North Carolina Bankruptcy Attorney

December 30, 2007

Chapter 13 bankruptcy plan payments are calculated with an even payment plan over a number of years, but some debts are paid off before others. The plan payment is calculated to pay an even amount every month until completed, but that doesn’t mean that each debt gets a payment every month that the plan is pending.

 Chapter 13 plans are a consolidation of debts pooled together and paid over time. Plans often are calculated to pay taxes, secured debts (such as a car or missed house payments) and loans or credit cards, but some types of debts may be paid before others.

In my bankruptcy district of North Carolina, administrative debts, taxes and secured debts are paid before the unsecured debts are paid. Once a secured debt like a car has been paid via the plan payments, there are still other debts to pay that will require the same monthly payment to complete a bankruptcy case. The rest of the payments will often go to the unsecured debts. When all the plan payments are made, the plan is over and any balance on unsecured debts is discharged, if the Chapter 13 bankruptcy plan was set up to pay a reduced percentage to unsecured debts.

It is important to point out that to discharge debts, the Chapter 13 Plan must be completely finished.  Some plans may be able to “split” certain secured claims into a secured and an unsecured portion, if the collateral isn’t worth as much as the loan balance. If a car loan was split in such a manner, until the plan is completed the car is not really paid off since the unsecured part of the loan is still looming, ready to spring back if the case is not finished. Even one missed payment can result in a dismissal, which means that no discharge is granted and the debts that would have been discharged are owed in full.

Chapter 7 cases are shorter and they don’t require payments, but they also provide the different benefits to the filer.  

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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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Last modified: May 7, 2013