If most of your debt is tied up in loans secured by property, Chapter 13 provides the best means toward keeping that property. While Chapter 13 does allow you to discharge some debt, you will end up paying back at least some of your unsecured debt, like medical bills or credit cards. But how does Chapter 13 work? Below, we discuss what you need to know about how the payment plan works and what you need to know about filing.
How Does the Repayment Plan Work?
In Chapter 13, you submit a repayment plan to the bankruptcy trustee that addresses your most important debts, called priority unsecured debts.
The repayment plan is executed over the course of three or five years, and payments are made on a monthly basis. Those with a gross income below the state median may qualify for a three-year plan as a reward for not filing under Chapter 7.
What Will the Court Consider When Calculating Your Monthly Payment Amount?
The court will use a formula to calculate your monthly payments. The payments are calculated using three formulas. These formulas will consider:
- Disposable income. The court will consider your monthly income against national standards regarding monthly expenses. The court will have access to information regarding your rent, bills, how many dependents you have and more.
- Priority debts. To qualify under Chapter 13, you have to be able to repay certain priority debts. These are rolled into your overall Chapter 13 bankruptcy and include child or spousal support obligations, and taxes. Next on the list are secured debts such as your mortgage or your car loan payments. Lowest on the list are unsecured debts such as credit card debt.
- Creditor’s interests. You can’t avoid liquidation simply by filing under Chapter 13. A determination will be made as to what kind of compensation your creditors would have received had you filed under Chapter and had your assets liquidated. Your Chapter 13 repayment must include a plan to repay unsecured creditors an amount equal to what they would have gotten in a Chapter 7 liquidation. Typically, this amount is very low. But those who make too much money to qualify under Chapter 7 will need to consider this when filing under Chapter 13.
Taken together, these formulas are used to determine the highest repayment amount. And that is the amount you will pay on a monthly basis.
What to Happens When Filing Chapter 13 Bankruptcy?
Chapter 13 comes with fewer credit penalties and can also manage secured debt. If you are trying to save your home or car, you will generally want to file under Chapter 13. There are, however, limits to how much debt you can owe. If your debts are too high, you may be ineligible for Chapter 13. If you owe too much money for Chapter 13 but make too much money for Chapter 7, your bankruptcy attorney can explain your options.
After you’ve analyzed your debt and are sure that Chapter 13 is the right choice, you’ll want to analyze your assets and income, as well as value your property.
When filing, you will fill out dozens of forms with your financial information and draft a repayment plan. You will then need to take a credit counseling course. After this is done, you can file your papers and pay the filing fee. The trustee will ask for documents that corroborate the information you provided on your forms. Your creditors will have a chance to object to any provision of the bankruptcy at the 341 meeting of creditors.
If everything goes smoothly, you will begin making monthly payments and whatever is unpaid at the end of the repayment period will be discharged, if it can be.
How Does Chapter 13 Work? Ask a Charlotte Bankruptcy Attorney Today
Chapter 13 bankruptcies are significantly more complicated than Chapter 7 bankruptcies. It helps to have an attorney guide you through the process, keep you up-to-date with your filings, and draft your repayment plan. Take control of your finances and keep your assets. Contact the Law Offices of Jack G. Lezman, PLLC today.