Which Creditor Takes Precedence in a Chapter 13 Filing?
Interviewer: In a Chapter 13 filing, are there certain debts that have precedence over others? Are there certain ones that are going to be paid first and then payments are disbursed to some other creditor?
Adam: The secured creditor would actually be the third person or entity paid. The first person paid is always going to be the attorney, and then it will go to the secured creditors, who are the ones who have a secured interest in that asset and who are just behind the attorneys and the government. It will go attorneys, federal government, and finally secured and unsecured creditors.
Interviewer: Are there cases where in a Chapter 13 some of the creditors are just going to get nothing?
Adam: It is very likely especially with credit cards companies. This is because they are unsecured or medical debt.
Interviewer: Will it be discharged then and considered null and void? Is that is the case, if there is no money left?
Adam: For the most part the debt could wind up being discharged, but again they are probably going to portion out a part of it at some point in time. It is probably going to be insignificant and not worth whomever the unsecured creditors’ time is.
Interviewer: How long do people have to pay in a Chapter 13 filing? Is it a several year process, this payment plan?
Adam: Most of the ones that I’ve seen have been a three or five-year payment plan. They are structured to pay out over a three to five year period.
Interviewer: So, in the Chapter 13 you are still in bankruptcy and making payments for three to five years, right? You have an open case for years?
Adam: Yes, that is right.
Reasons for Filing Bankruptcy
Interviewer: Let’s talk about creditors. What are the reasons that you see people come to you and decide to file bankruptcy? What is it that is going on with them besides lack of money that causes them to file bankruptcy?
Adam: Sometimes it is just a mistake of not being able to budget and putting too much money on too many credit cards. Also, possibly, they could have had an accident and now have hospital bills they can’t afford. Probably the most common is where they or their spouse has lost jobs, so their income is cut in half almost and they wind up being unable to make it on the bills and the debt just spirals out.
Interviewer: I assume those are the most common reasons, as well like death of a spouse.
Interviewer: When people come to you do they feel ashamed? Do they feel like a bad person or are they pretty resolute on the decision? What are the emotional cues that you get from people that come to you?
Adam: The most common ones that I see when they are actually filing either a Chapter 7 or a Chapter 13. They understand they did something that maybe wasn’t in their control. There is nothing really to feel bad about it. I mean there is a reason why the bankruptcy laws are set up, which is to help people recover from these situations.
Interviewer: I mean people shouldn’t feel bad, but do they for the most part? How do you feel? What are you getting form people? How do they feel when they talk to you? Do they feel terrible or do they feel like they are going to get their creditors? What is the overall feeling?
Adam: I don’t think that they necessarily feel bad. I think by the time they have actually reached out to contact a bankruptcy attorney they understand that, that is the position and there is nothing that they could do to make it any other way.
Interviewer: I am sure that a lot of people are afraid to file. What would you guess are some of the reasons that prevent people from filing and maybe this is eating away at them for six months a year or something? What do you think stops people from doing it right away?
Adam: I would say pride is the number one reason why they don’t file for bankruptcy sooner. Some people delay the process because they want to take responsibility for whatever circumstances may have come along.
By Adam Hunt