Chapter 13 Repayment Plan
In a Chapter 13 repayment plan, Debtors make monthly payments to the Chapter 13 Trustee for three to five years, who in turn distributes the funds to the Debtor’s creditors. Chapter 13 is designed to allow a Debtor to catch up on delinquent house or car payments without having to surrender their possessions. The Chapter 13 plan payment will vary based on the Debtor’s income and expenses, types of debt, the total of their debt, and the value of their property. The Debtor will typically pay back a portion of their unsecured debt, such as credit cards, cash advance loans, medical bills, and the amount will be determined by the Debtor’s income and assets.
Income, Expenses, and the Means Test
You must have a steady source of income from employment, a business, alimony, pension, Social Security, disability payments, or unemployment in order to qualify for a Chapter 13 bankruptcy. Your attorney will examine your current income as well as the average income that you have had during the six month period before you filed the bankruptcy. Your income is then compared to the media income for your family size. If your income exceeds the median income, then your attorney will help you to complete “the means test” in order to determine how much disposable monthly income you have, after your reasonable and necessary lying expenses are taken into account. The amount that will repay your unsecured creditors will be a function of your current income minus your average expenses on the means test, an amount that is deemed to be your “disposable income.”
If your average income falls below the median income, then the amount that you will repay your unsecured creditors will be determined by your budget and other factors, such as whether you would like to keep or surrender future tax refunds while you are in the plan. If you have nonexempt assets, the value of your assets could also control the amount you must pay.
Types of Debt
Your creditors are notified when you file the case, and are given a time frame within which they must submit a Proof of Claim to the court in order to receive distribution from your payment plan. The Proof of Claim will state the amount of your debt, and should also attach supporting documentation regarding the debt. There are different classifications of debts, which are paid out according to the order of distribution in your Chapter 13 plan.
Primary Debts are obligations such as income taxes, domestic support obligations, and some property taxes. These debts must typically be paid in full or, in the case of a domestic support obligation, kept current, during your plan.
Secured Debts are house and car payments, and other debts where your creditor has the right to repossess or foreclose on your property if you do not make the payments. Some other examples include furniture and jewelry loans, debts for HVAC units, and the like.
Unsecured obligations are personal loans, medical bills, credit cards, etc. that do not have any of your property attached as collateral for the loan.
What happens if I don’t make my bankruptcy payments?
Your first payment is due within thirty days of filing your bankruptcy case. If you do not start making your payments immediately after filing, the court could dismiss your case. Once your case is confirmed by the court, the Trustee could file a motion to dismiss if you do not make all of your payments regularly and timely. Furthermore, a creditor could request that the Court life the automatic stay so that they can collect from you directly, or take action such as foreclosure and repossession of vehicles.
What happens at the end of my Chapter 13 repayment plan?
Once you have completed your plan payments that are required under the plan, you will be current on your house note and you will have your car and/or other secured debts paid in full. If you meet all of your plan requirements, you will receive a discharge from all of your debts that are subject to the discharge rules of the Bankruptcy Code. Please note that the certain obligations, such as student loan obligations and certain tax debts, are not subject to discharge.
Learn more about eliminating debt with bankruptcy discharge
Middle Tennessee’s Top Bankruptcy Attorneys
Navigating the bankruptcy process can be daunting, but enlisting the help of a bankruptcy attorney that you can trust will provide tremendous value and ensure a smoother process.
Flexer Law has been serving the legal needs of Middle Tennessee residents since 1981. Our experienced bankruptcy attorneys will work diligently on your behalf to provide the best financial outcome for you.
We have three office locations throughout Middle Tennessee to accommodate your legal needs. Contact us for a free consultation, either in person or virtually, and we’ll get started on finding the best solution to get your financial life back on track.