Inviting the court to have a say in your personal and financial life is definitely scary, and many of our clients come to us feeling a little bit reluctant to enter into a relationship with a Chapter 13 trustee. Yet among those who file for bankruptcy not everyone will meet the rather rigid requirements of the Chapter 7 means test.
For some clients, Chapter 13 is their only road to debt freedom. Fortunately it’s not as invasive as clients typically envision and it is possible to live on a Chapter 13 budget.
What is a Chapter 13 budget?
When you file for Chapter 13 you will create a repayment plan that a trustee must approve. This plan includes a copy of your budget that turns most of your disposable income towards the business of repaying your debts. You will do this for 3 to 7 years.
After this period has passed it doesn’t matter what the balances on your debts look like. All eligible debts will be discharged unless you choose to reaffirm them. Generally people choose to reaffirm their house payments so they can keep their house. Sometimes they reaffirm car payments as well.
This means your budget may look very tight, but it must address all your basic needs. For example, the trustee has to leave you a reasonable amount to pay utilities and groceries. If your house payment is wrapped up in your repayment plan then you won’t have a house payment to make for awhile.
It is up to your attorney to negotiate the best plan they can for you. It’s important to provide your attorney with a full financial picture so they can do this. Bring 12 months of utility bills for example, so that you don’t get a utility payment that accurately represents your budget in summer but not in the winter, when the bills go up.
How tight is a Chapter 13 budget?
Not as tight as you may be imagining. There’s usually a little room to buy gifts and even to maintain a small entertainment budget. For example, a family of four is allowed to spend up to $1740 on food, clothing, housekeeping supplies, personal care, and miscellaneous. That means if you can keep your grocery budget under $1000 every month you will have $740 to spend across all these other categories.
If you’re careful, it’s possible to spend even less. You don’t even have to slave in the kitchen for hours at a time. There are some great websites devoted to helping people produce cheap, filling meals.
It is very important to stick to your plan.
If you don’t stick to your plan your bankruptcy case can be dismissed. While you can try to file bankruptcy again after a failed Chapter 13 plan you’ll only get the benefit of the automatic stay for 30 days. You won’t get it for the entire bankruptcy, which means you’ll miss out on one of the major advantages of declaring bankruptcy in the first place.
It all starts with an experienced attorney who will protect your interests. It is almost impossible to successfully file Chapter 13 on your own. Reach out to our office to set up an appointment today.
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