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Who is Responsible for Paying Bankruptcy Debts?

who pays bankruptcy debt

Filing for bankruptcy may seem very confusing. You may be asking yourself, “Where does the debt go?” or “Who pays for the debt?”. The answers to these questions all depend on the type of bankruptcy you file, be it either a Chapter 7 liquidation or Chapter 13 wage-earner plan. Let’s unpack this and clear up some of the confusion:

  • Chapter 7 – The debtor, or person filing for bankruptcy, pays a bankruptcy petition filing fee – typically $335.00 give or take depending upon the jurisdiction (in Massachusetts, it is $335.00 – in a Chapter 7 bankruptcy). A Chapter 7 Trustee is appointed.  The Trustee then attempts to pay creditors’ claim by liquidating any non-exempt assets of the debtor. If the debtor has no non-exempt assets, there is nothing for the Chapter 7 Trustee to liquidate and no dividend to creditors. Most Chapter 7 liquidations do not result in a dividend being paid to unsecured creditors. 
  • Chapter 13 – A Chapter 13 bankruptcy is a little more complicated. In this form of bankruptcy, the debtor looks to formulate a repayment plan, lasting between 3 and 5 years, to pay off their debts. Their monthly payments are based upon their calculated surplus monthly income as determined by the Mean’s Test that has been completed. Chapter 13 is usually for people who earn higher income than those who file for Chapter 7, and who want to retain their property that would otherwise could be lost to liquidation in Chapter 7.

It is important to remember that bankruptcy should be your last resort, after all other attempts to pay the debt have failed and you have contacted your creditors to explain your situation. For more information about the bankruptcy process, or to inquire about filing for bankruptcy, call the Law Office of Barry Levine at 978-922-8440.