When someone files for Chapter 13 bankruptcy, there are certain types of debt that must be paid off entirely by that person, and then there are other debts that will get partially discharged. Secured debts such as the mortgage, a car loan, and property taxes, are usually paid off by the debtor through a restructured payment plan. These debts are called secured claims because they are backed by collateral: your property. Then there are unsecured debts, which generally fall under two main groupings, general unsecured debts, and priority unsecured debts. In Chapter 13, you usually have to pay off both your secured debts and priority debts. General claims, however, might not have to be paid in full:

• General Unsecured Claims are not backed by collateral, but they are not at the top of the list for what needs to get paid. These can include credit card debt, medical bills, utility bills, and personal loans. You may not have to fully pay this type of debt.
• Unsecured Priority Claims include some income tax debts, overdue child and spousal support, legal and administrative fees, etc. These are the most important types of unsecured debt, and these often have to be paid off in Chapter 13.

So how much of your general unsecured debt can you discharge in Chapter 13 bankruptcy? The answer lies in how much disposable income you have, and what the "best interest of the creditors" is. Keep reading to get a breakdown of these two key elements in your Chapter 13 case.

Disposable Income and the Means Test

Whatever remains after paying for living costs, that is your disposable income. To figure out what your disposable income is, a bankruptcy court first looks at the results of your means test. If necessary, it will want to see your income and expenses. For the duration of Chapter 13 reorganization bankruptcy, every bit of disposable income has to go toward your debts, first the secured debts, then priority debts. Each unsecured non-priority debt gets a percentage of what remains.

In the means test, your average income for the last 6 months is compared to the median income in your county or state for that size household. If your average is more than the median income, then you have to fill out the rest of the means test, including deductions (such as paying off higher priority debts), and then at the end you should get a number, which you can multiply by 60 in order to get the amount you will have to pay toward your unsecured debts during bankruptcy. If your average income is less than the median income, you can stop before finishing the test, and a court will use your schedule of income and expenditures to figure out what will go toward your unsecured debt.

The Best Interest of Unsecured Creditors

This factor also affects your eligibility for Chapter 13 bankruptcy. The best interest of your creditors is the minimum figure you'd have to repay them in your Chapter 13 plan. If you can't give them that figure, then you don't qualify for Chapter 13 bankruptcy. Essentially, this minimum amount is the same amount creditors would have received had you filed for Chapter 7 bankruptcy instead.

The bankruptcy trustee has to play out a scenario, looking at what property exemptions you could have gotten in Chapter 7 bankruptcy and going from there. For instance, if your car is valued at $10,000, and you would only have been able to get an exemption for $3,500 worth of the vehicle, then in theory, the trustee would have sold the car, using the $6,500 to pay off unsecured debts. Looking at your Chapter 13 case then, the trustee would say that unsecured creditors should at least get $6,500 in total.

If you have any further questions about getting debts discharged through bankruptcy, or managing your debt through bankruptcy alternatives, do not hesitate to call a bankruptcy lawyer today!