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What Is Chapter 13 Bankruptcy?
How Do I File Chapter 13?
First, ensure that Chapter 13 is the right option for you. Most people decide between Chapter 7 and Chapter 13. While they both have their own specific advantages and disadvantages, they tend to work better when targeting a specific problem. With the help of a Chapter 13 calculator, you can catch up on loan payments, missed mortgages, and even prevent foreclosure or repossession. Chapter 7, however, does not have this similar purpose. Below, we outline the specific filing steps we recommend:
Steps to Chapter 13 Filing:
- Analyze the debt. Having debts that are too high affects your eligibility for Chapter 13. This option actually has limits on the total amount of debt you can owe. Additionally, debts such as mortgages, certain taxes, and domestic support arrears must receive full repayment over a 3 to 5 year period.
- Value the property. Figure out how much property you own, then determine how much you can protect with bankruptcy exemptions. Even though you can technically keep all of your property, plans require certain payment amounts to your creditors which equal the value of your nonexempt property. Factor the nonexempt property value into your Chapter 13 calculator.
- Determine your income. The essential part is figuring out whether your monthly income is enough to pay for living expenses, monthly debt repayments, and nonexempt property values. Without enough income, courts will not allow you to proceed.
- Fill out the required forms. Work with your attorney to ensure that you fill out the appropriate paperwork.
- Take the pre-filing course. This credit counselling course is mandatory. Use the certificate that you receive afterward to file with your bankruptcy paperwork.
- File the forms and pay the fee. This begins the process.
- Provide your chosen trustee with the documents which prove your assets and income. Then, attend the necessary court hearings.
- Make your payments. These must be made within 30 days. Do not miss payments, or else the court will dismiss your case.
- Get the bankruptcy discharge. This happens after you fully complete your plan. The discharge relieves you of payment obligations when you finish paying the promised amount from your plan.
How to Calculate Chapter 13 Payments With Disposable Income?
Disposable income is the amount you have left to spend after subtracting your allowed bankruptcy expenses. It determines whether you qualify for a bankruptcy discharge in both Chapter 13 and Chapter 7. In claiming deductions, you use the actual cost of some of the deductions. For others, however, you use national or local standards.
Below, we list common deductions you may take:
- Food and clothing
- Utilities and housing
- Transportation costs
- Involuntary payroll deductions
- Life insurance
- Court-ordered payments
- Education costs
- Childcare expenses
- Health care costs
In order to file for Chapter 13 bankruptcy, you’ll need to fill out a form that will help determine your monthly disposable income. The amount of money left over after deducting expenses is the number which should be paid each month towards unsecured and non-priority debts. This plan typically lasts from 3 to 5 years.
How Much Must You Pay with Unsecured Debt in Chapter 13?
General unsecured debt encompasses all debts other than priority and secured obligations. The amount you pay to unsecured creditors is either the greater of your disposable income or the amount they would have received in a Chapter 7 filing. In terms of disposable income, your creditors receive the money you have left over each month after your allowed expenses, secured debts, and priority claims. When it comes to the best interest of the creditors, they receive what they would have in a Chapter 7 filing. In other words, it is an amount equal to the property value that you cannot protect with exemptions.
How Can You Reduce Chapter 13 Repayment Plan?
If you wish to lower your monthly required payments, you must approach the bankruptcy court.
Certain causes exist for wanting to lower your monthly payments:
- Taking a lower-paying job
- Losing key customers or incurring unexpected business expenses
- Suffering a serious disability or injury that permanently affects your ability to work
- Paying health insurance premiums for both yourself and your dependents that your employer used to cover
Wanting to lower monthly payments makes a lot of sense when your financial situation changes, especially if you still have “disposable income.” However, lowering these payments requires altering your Chapter 13 plan. This is because the monthly payments are an essential part of the plan. In order to modify your Chapter 13 plan, we recommend going back to the Chapter 13 calculator. Take into account the priority debts, secured debts, unsecured debts, and feasibility.
How To Calculate Chapter 13 Payment With New Income?
In Chapter 13 repayment, debtors are required to report any changes in income. This is true whether the debtor’s income increases or decreases. Debtors in a Chapter 13 situation must use their “best efforts” to make their plan work. If they see a significant increase in income, no matter how, they will be asked to increase their monthly payments. Failing to report increases in income brings the risk of bankruptcy case dismissal, losing their right to a debt discharge, and even punitive bankruptcy fraud charges.
Contact O’Bryan Law Offices Today for Chapter 13 Help