Chapter 13 Repayment Plan

A Chapter 13 is a repayment plan where certain creditors are paid back in full and others receive a payment of less than what is owed to them. The repayment plan is typically between three and five years depending on the household income of the person filing. The amount of the payment varies drastically from one situation to the next. Some people pay back only 1% of their debt and others pay back 100%. The payment can also be changed through the course of the plan if a person’s situation changes.

Ideally, a payment in a Chapter 13 should be the difference between a person’s net income and necessary living expenses. Necessary living
expenses include rent, transportation, daycare, food, healthcare, and clothing among other things. The court also allows expenses for school activities and entertainment. The idea is that a person filing a bankruptcy is agreeing to pay his/her disposable income into the Chapter 13 for a set period of time or a
commitment period. After this time, the debtor gets a discharge which wipes out any leftover unsecured debt that was not paid back during the repayment plan. Certain debts like student loans survive the Chapter 13 discharge. If at any point a person manages to pay off all the claims filed in the case, then
the case ends.

Chapter 13

The payment in a Chapter 13 can be determined by a few other things as well. Certain types of debt set a floor in the case. Basically, enough money must be paid into the bankruptcy to pay these debts in full for the plan to be approved. These debts include priority taxes (typically comprised of the last three years of taxes) and arrears on domestic support orders. There are other debts that a person filing bankruptcy may chose to include in their case. These set a floor of their own. If a person is filing a bankruptcy to stop a foreclosure, then a person can use a Chapter 13 to catch up on their mortgage arrears through the repayment plan. All the arrears must be paid to do this. A person may also choose to pay for a vehicle though the plan to avoid a repossession or in some cases to pay a lower amount for the vehicle than the contracted amount. That debt must be paid in the plan and creates another floor in the case.

There are many ways to design a Chapter 13 that allow a person to meet these floors. For example, a repayment plan could start off at a lower amount and then the payment could be scheduled to change later on when, for example, a 401(K) loan is finished. This can allow someone who is currently struggling the breathing room necessary to pay enough into a Chapter 13 to cover mortgage arrears and prevent the loss of a home.
It is extremely important to have good legal counseling when entering a Chapter 13 as the rules and requirements are complicated.

Written by Kris Whelchel

Kris Whelchel is an attorney practicing consumer bankruptcy. She handles both Chapter 13 and Chapter 7 bankruptcy cases.

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Chapter 13 is a Repayment plan …

A Chapter 13 is a repayment plan where certain creditors are paid back in full and others receive a payment of less than what is owed to them. The repayment plan is typically between three and five years depending on the household income of the person filing. The amount of the payment varies drastically from one situation to the next. Some people pay back only 1% of their debt and others pay back 100%. The payment can also be changed through the course of the plan if a person’s situation changes.

Ideally, a payment in a Chapter 13 should be the difference between a person’s net income and necessary living expenses. Necessary living expenses include rent, transportation, daycare, food, healthcare, and clothing among other things. The court also allows expenses for school activities and entertainment. The idea is that a person filing a bankruptcy is agreeing to pay his/her disposable income into the Chapter 13 for a set period of time or a commitment period. After this time, the debtor gets a discharge which wipes out any leftover unsecured debt that was not paid back during the repayment plan. Certain debts like student loans survive the Chapter 13 discharge.  If at any point a person manages to pay off all the claims filed in the case, then the case ends.

The payment in a Chapter 13 can be determined by a few other things as well. Certain types of debt set a floor in the case. Basically, enough money must be paid into the bankruptcy to pay these debts in full for the plan to be approved. These debts include priority taxes (typically comprised of the last three years of taxes) and arrears on domestic support orders.  There are other debts that a person filing bankruptcy may chose to include in their case. These set a floor of their own. If a person is filing a bankruptcy to stop a foreclosure, then a person can use a Chapter 13 to catch up on their mortgage arrears through the repayment plan. All the arrears must be paid to do this. A person may also choose to pay for a vehicle though the plan to avoid a repossession or in some cases to pay a lower amount for the vehicle than the contracted amount. That debt must be paid in the plan and creates another floor in the case.

There are many ways to design a Chapter 13 that allow a person to meet these floors. For example, a repayment plan could start off at a lower amount and then the payment could be scheduled to change later on when, for example, a 401(K) loan is finished. This can allow someone who is currently struggling the breathing room necessary to pay enough into a Chapter 13 to cover mortgage arrears and prevent the loss of a home.

It is extremely important to have good legal counseling when entering a Chapter 13 as the rules and requirements are complicated.

Written by Kris Whelchel

Kris Whelchel is an attorney practicing consumer bankruptcy. She handles both Chapter 13 and Chapter 7 bankruptcy cases.

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Bankruptcy & Child Support

Bankruptcy allows most debts to be wiped away and is meant to give the debtor filing a bankruptcy a fresh start. However, some debts do survive bankruptcy.

Child support is not a debt that can be discharged in a bankruptcy. Child support has been placed in a special category of debts that automatically survive a bankruptcy discharge.

When a person, who owes child support, files a Chapter 7 bankruptcy, that person must still pay the ongoing child support obligation as well as any arrears. The ongoing support will continue through the bankruptcy and after the bankruptcy as if no case was ever filed. Any arrears will pass through the bankruptcy and continue to exist as if the bankruptcy never occurred as well.

When a person, who owes child support, files a Chapter 13 bankruptcy, that person must continue to pay their ongoing obligation and any arrears will need to be paid through the Chapter 13 repayment plan. A Chapter 13 bankruptcy is essentially a repayment plan where a person can pay back certain debts over the course of a three- to five-year period.

A Chapter 13 can provide a method to get back on track with child support arrears as it allows a person to have a repayment schedule where all the person’s disposable income is used to bring the child support obligation current. In some circumstances, entering into a Chapter 13 repayment plan will stop license suspensions or other legal action.

Either bankruptcy can allow a person a chance to focus their efforts on paying back a debt that cannot be eliminated.

Written by Kris Whelchel

Kris Whelchel is an attorney practicing consumer bankruptcy. She handles both Chapter 13 and Chapter 7 bankruptcy cases.

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Duration of Chapter 13

Chapter 13 bankruptcies have a minimum commitment period of three years and a maximum of five years. This means that the repayment plan in a Chapter 13 will last somewhere between three and five years. A number of considerations determine this.

The first consideration is whether a debtor is below or above the median income. The median income is the median income for the household size of the debtor in the state the debtor lives in. If the debtor is below the median income, the debtor can elect a three-year plan. If the debtor is above the median income, then the debtor must have a five-year plan.

If the debtor is below the median income, the debtor may choose to enter a repayment plan that lasts longer than three years. For example, if the debtor is filing a Chapter 13 in order to pay mortgage arrears and stop a foreclosure, then debtor may elect to file a five-year plan. The debtor may choose this to keep the payment in the Chapter 13 more affordable. All mortgage arrears must be paid back in full over the course of the plan. Stretching the plan over 5 years would allow for a lower payment in some circumstances. The debtor could also elect to have the plan duration be any number of months between 36 (three years) or 60 (five years).

 

By Kris Whelchel

Written by Kris Whelchel

Kris Whelchel is an attorney practicing consumer bankruptcy. She handles both Chapter 13 and Chapter 7 bankruptcy cases.

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Social Security Income and the Means Test

When filing a Chapter 7 or 13 bankruptcy, a debtor must show that he passes the means test. The means test is basically a series of calculations that are supposed to show, in theory, whether or not the debtor has enough income to be able to pay back his creditors. To perform the means test, one must determine what the debtor’s income is. Almost all sources of income are to be taken account of on the means test. The amount of the income is determined by taking the six month average of the debtor’s various sources of income.

Social Security Income gets special treatment on the means test. It can be completely excluded. That means that Social Security Income does not have a negative impact when the means test is used to determine if someone may qualify for a Chapter 7.

The means test is not the only determining factor on what type of bankruptcy a person is allowed to file. The actual budget of a person is taken into consideration as well. This budget is represented on Schedules I and J. If Schedule J, shows a substantially positive amount, chances are that the debtor will not be able to qualify for a Chapter 7.

Social Security Income can also be excluded from a debtor’s budget. Therefore, it will not have an impact on a person’s qualification for a Chapter 7 here either.

If an individual wishes to file a Chapter 13, he may elect to include their Social Security income on his budget, so that he can show he does have enough income to afford a repayment plan.

 

By Kristen Whelchel

Written by Kris Whelchel

Kris Whelchel is an attorney practicing consumer bankruptcy. She handles both Chapter 13 and Chapter 7 bankruptcy cases.

View all author posts →