Chapter 13 bankruptcies may only be filed by those with regular income, whose debt does not exceed a certain level, and who are unable to repay all of their debts. The Bankruptcy Code provides a means for these individuals to repay their debts under a repayment plan over three to five years under Chapter 13.
Debtors with a regular source of income are good candidates for Chapter 13 bankruptcy. Debtors should calculate their future income including wages, commission, child support, spousal support, worker’s compensation, disability, social security, unemployment, retirement, dividends and any other income.
Next, the consumer should determine how much of the income is available to repay debts after the consumer pays for the basic necessities in life. Basic necessities may include rent, mortgages, car notes, utility bills, food and clothing. These regular living expenses should be subtracted from the anticipated income. The resulting number is the amount of money the consumer has available to contribute to a Chapter 13 payment plan to pay down debts.
It is in the consumer’s best interest to think honestly and realistically about future income potential. It is entirely possible that after the living expenses are subtracted, there will not be sufficient income left over to repay the debts within the three to five year time period. In this case, the debtor may be eligible for a partial payment plan, which is known as a “best efforts” plan. Under the partial repayment plan, the consumer repays the debts up to the amount that the consumer’s income will permit. At the conclusion of the plan, the balance of the debt will be wiped out.
Chapter 13 plans allow the debtor to come up with a manageable plan to make the payments smaller. This way, consumers can avoid property garnishments or repossessions.
Proposing a workable Chapter 13 plan and getting it confirmed by the Court is a complicated process with several pitfalls for the inexperienced. Very few people who have never been through the process are able to handle everything on their own. You should always have the help of an experienced bankruptcy attorney if you plan to help you put together an appropriate plan. Fortunately, because a Chapter 13 case includes a payment plan, you can usually pay most of the costs through the plan and spread out the attorney fees over 36 to 60 months. This often means that the upfront costs of filing a Chapter 13 case are less than for a Chapter 7 filing.
If you are considering filling for bankruptcy, you should seek a qualified and experienced bankruptcy attorney. An attorney can help you determine which chapter of bankruptcy is best for you, and tell you what debt will be eliminated under each Chapter.
