The answer to this question depends on several factors – for this reason if you call and we do a free intake, we can give you an estimate rather quickly. Bankruptcy can help you get out from under considerable debt, but not all forms of bankruptcy allow you to keep many of your most important assets along the way. Those with regular income can file a Chapter 13 bankruptcy to help keep key assets like a home or car. In Chapter 13, debts are restructured over a three- or five-year period. If you make regular payments over that time, then some or all of your debts may be discharged. The Chapter 13 repayment plan is the legal document that lays out how you’ll pay back your creditors. It must be drawn up and filed with the bankruptcy court within 14 days of filing the bankruptcy petition (unless you get an extension), after which the judge and your creditors will have a chance to assess and possibly challenge the plan. If the courts ultimately okay your plan, you’ll then follow through to pay back your eligible debts. It’s possible to DIY your own Chapter 13 plan, but the process can be complicated and detail-heavy. That’s why it’s best to work with a bankruptcy lawyer, who can help make sure your repayment plan meets all requirements for approval.
The debts you’ll pay off in a chapter 13 bankruptcy
Not all of your debts are treated equally under Chapter 13 bankruptcy; some might not even have to be paid in full. Generally, your debts will be split into three different categories in your Chapter 13 repayment plan.
Priority debts
Priority debts are those that must be paid off during the course of your plan, with certain exceptions. These are debts like back taxes you owe, the cost of filing for bankruptcy, and child- and spousal-support payments that need to be brought current.
Secured debts
Secured debts are those that are backed by collateral a home mortgage or auto loan, for example. Depending on the specifics of the secured loan, you can be required to pay back the value of the collateral or the full payment of the debt.
Unsecured debts
Last are unsecured debts, like those from credit cards, unsecured personal loans and medical bills. These debts get the last slice of the pie, which means that it’s totally possible for your unsecured creditors not to be paid in full by the end of your Chapter 13 repayment plan. If that happens, those debts may eventually be discharged.
How To Approach The Creation Of Your Repayment Plan
The calculation of the Chapter 13 repayment plan can be a complicated process full of uncertainty. For this reason, it would be advisable working with a lawyer to determine your eligibility and to draw up the particulars of your repayment plan. These legal proceedings are not an area where you want to make any avoidable mistakes that could lead to more difficulties piled on top of a bankruptcy’s usual stresses. Still, it’s still worth knowing the basics of the process before meeting with your lawyer so that you can be a fully engaged participant in those discussions. The beginning calculation process features two primary stages — the Chapter 13 means test and the creation of the plan itself.
The Chapter 13 Means Test
In simple terms, the Chapter 13 means test determines the basic structure of the repayment plan. It is divided into two forms — Form 122C-1, which determines your average monthly income and the length of the repayment plan, and Form 122C-2, which determines the disposable income you’re able to use to pay back your creditors.
Form 122C-1 requires the filer to add up all sources of household income. That figure is then compared to your state’s median income based on the number of people in your household and your marital status. If your average monthly income falls below the state median, then your repayment plan can cover three years. If it’s equal to or higher than the state average, then your plan can cover five years. The length will ultimately be determined by the court, but this form sets a starting point as you work on the initial version of your repayment plan.
Form 122C-2 then uses your average monthly income as a baseline for determining the disposable income that can be used to pay back creditors. The filer can claim numerous deductions on everything from the cost of food to health insurance in order to determine disposable income, but the restrictions on how much can be claimed in each category are often strictly tied to IRS standards. If you fudge the numbers or simply take your best guess at what you can claim under each category, you’re going to run into problems when the court assesses your case. Once the means test is complete, you can start to work on drafting the repayment plan itself. The details of the plan will depend on your unique debts and the disposable income you calculated during the means test, so we strongly advise that you work on it with a trained expert like a bankruptcy lawyer. Not all Chapter 13 filers need the same advice for creating a repayment plan. After you create your repayment plan, you’ll need to file it with the bankruptcy court no later than 14 days after filing. The court will assess the plan and hold a hearing to give your creditors a chance to make any objections. If all goes well, the plan will be approved. Keep in mind that although approval may not happen until roughly three months after filing, you’ll still have to start making payments on the plan within 30 days after you file.
How To Follow The Repayment Plan
Once your plan is approved, most of your payment interactions should take place with your bankruptcy trustee. This individual is appointed shortly after the initial bankruptcy filing and essentially acts as a go-between for you, the bankruptcy court and your creditors. Your payment goes to the trustee on the approved schedule (usually bimonthly or monthly), and they are responsible for dividing it among your creditors as detailed in the repayment plan. Not following through on the plan could complicate your bankruptcy case. Missing or stopping payments could lead to the court dismissing your bankruptcy essentially canceling it. In that case you could end up back where you started, or your bankruptcy could be converted into a Chapter 7 bankruptcy that doesn’t allow you to keep certain assets. To avoid that result, it’s probably a good idea to put your monthly plan payments on auto pay or even a payroll deduction to make sure they’re all made on time. If you make all payments according to the plan, you will be on the road to repaying your debts by the end of the repayment plan, which can help your chances of earning a bankruptcy discharge.
In Chapter 13 bankruptcy, you propose a repayment plan to pay back some or all of your debts over a three to five-year period. This calculator estimates your minimum monthly Chapter 13 payment by calculating your secured and priority payments—amounts that all Chapter 13 filers must pay. You might have to pay more, however, because a Chapter 13 plan payment depends on other factors, including:
• where you live
• your income and expenses
• whether you own nonexempt property, and
• the types of debts you have.
For instance, you’ll have a higher payment if you have a lot of disposable income that could be used to pay other creditors, or if you can’t protect all of your property with a bankruptcy exemption (nonexempt property). Until you confirm your payment amount with a local bankruptcy lawyer, anticipate paying the greater of the calculator result, the value of your nonexempt assets (minus sales costs), or your disposable income.
How Does Chapter 13 Bankruptcy Work?
Chapter 13 bankruptcy is a repayment plan (usually a duration of 36 to 60 months) which proposes to the court to pay back some or all your outstanding debt to creditors. In most cases, you will only pay back a portion of your total outstanding debt to creditors. Note that a 36-month plan is proposed to the court if your gross income is below the median income for your state, and a 60-month plan will be proposed if your gross income is above the median income for your state. A Chapter 13 Bankruptcy plan will propose an amount a person will pay back to creditors and will establish the timeline in which the person will pay back the amount. Once the bankruptcy case is filed, the first plan payment is due 30 days after the filing date. Once you complete your repayment plan term, the remaining dischargeable debt that was not paid back during the term of your plan will be discharged, and you will no longer be personally liable for the payment on these debts.
Disadvantages of Filing for Chapter 13 Bankruptcy
There are a few drawbacks to consider when deciding whether to file for Chapter 13 bankruptcy. Be aware that it can take up 5 five years for you to repay your debts under a Chapter 13 plan, and debts must be paid out of your disposable income. Disposable income is any income you have left over after spending on necessities like food, shelter, and medical care. In other words, all your extra cash will thus be tied up during the entire repayment plan. Any bankruptcy filing could also negatively impact your credit for some time. A Chapter 13 bankruptcy can remain on your credit report for up to 10 years, and you will lose all your credit cards. Bankruptcy also makes it nearly impossible to get a mortgage if you don’t already have one. Further, note that you will not be able to file for Chapter 7 bankruptcy if you went through bankruptcy proceedings under Chapter 13 within the last 6 years; declaring bankruptcy under Chapter 13 will make it harder to declare under Chapter 7 later. Be aware that you cannot file for Chapter 13 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because:
• you violated a court order, or
• you requested the dismissal after a creditor asked for relief from the automatic stay.
Note that if you obtained a Chapter 13 discharge in good faith after paying at least 70% of your unsecured debts, the 6-year ban on Chapter 7 bankruptcy doesn’t apply. While the repayment plan for Chapter 13 bankruptcy may address some forms of debt, it won’t relieve alimony and/or child support obligations nor any student loan debt. You may still be obligated to pay some of your debts, such as a mortgage lien, even after you complete the bankruptcy proceedings.
Some Of the Many Advantages of Filing for Chapter 13 Bankruptcy
There are advantages that address the drawbacks of Chapter 13 bankruptcy. While it generally takes longer in Chapter 13 to pay off your debts, you’ll have more time to make your payments, and Chapter 13 trustees may be flexible on the terms of your payments. For instance, you may be able to:
• stretch out your debt payments,
• reduce the amounts of your payments, or
• give up an item of your property that you’re making payments on.
Note that once you successfully complete a repayment plan under Chapter 13, individual creditors can’t obligate you to pay them in full. Further, although a Chapter 13 bankruptcy will stay on your record for years, it is a small trade-off for missed debt payments, defaults, repossessions, and lawsuits that could hurt your credit even more and be harder to explain to a future lender than bankruptcy. In many cases, declaring bankruptcy can get you started sooner on rebuilding your credit. While you can only file under Chapter 7 once every 6 years, you can always get a Chapter 13 plan if you encounter another financial disaster before you’re entitled to file for Chapter 7. In other words, you may file for a Chapter 13 plan repeatedly (although each filing will appear on your credit record).
As addressed earlier, Chapter 13 bankruptcy will not relieve an individual of their alimony or child support obligations. However, bankruptcy can at least alleviate many of a person’s other financial obligations that are hindering their financial recovery. Nothing will get rid of student loan debt, but at least bankruptcy will prevent lenders from aggressive collection action. In Chapter 13 bankruptcy, you must devote all of your “disposable income” to repayment of your debts over the life of your Chapter 13 plan. Your disposable income first goes to your secured and priority creditors. Your unsecured creditors share any remaining amount. Disposable income is what you have left over at the end of every month after you pay your reasonable and necessary living expenses. The court determines your disposable income by reviewing the Chapter 13 means test forms. The forms are similar to the Chapter 7 means test forms used to decide whether or not you qualify for a Chapter 7 bankruptcy.
Bankruptcy Lawyer For Chapter 13
When you need legal help with a Chapter 13 Bankruptcy, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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