If you’re considering Chapter 13 you know that you’ll essentially be consolidating all of your debt payments into one payment approved by the trustee. Yet you might not be sure if you’ll be able to meet that payment, especially for 3 to 7 years. How does the court calculate these payments, and is there any room for negotiation?
The court uses several guidelines to make this determination. First, they’re going to take all of your disposable income. That’s any income that’s left over after your basic living expenses are accounted for, including certain allowed expenses. Second, they want to make sure that the creditors get at least as much as they would have gotten out of a Chapter 13 plan.
What living expenses are allowed under Chapter 13?
Allowed expenses include:
- Rent or Mortgage
- Utilities based on IRS local standards
- Mandatory Payroll Deductions
- Life Insurance
- Court-Ordered Payments
- Child Care
- Health Care
- Telecommunication Services
- Educational Expenses for Mentally or Physically Challenged Child
- Educational Expenses for Employment Purposes
All of these expenses will be filled out on a schedule that the court will use to help determine your payment.
What is the average Chapter 13 monthly payment?
Most people pay between $500 and $600, but it can depend on the amount of income you bring in, the amount of debt you owe, and your expenses. We’ve seen payments as low as $200 and as high as $1100. Everybody’s circumstances are different.
We have never seen a payment that doesn’t allow our clients to meet their monthly expenses, and you should know that we work closely with your trustee to develop a plan that you can live with throughout the entire bankruptcy period.
What percentage do you pay back in Chapter 13?
High-income filers may be required to pay back 100%. For them, a Chapter 13 plan is essentially a way to buy some breathing room long enough to pay back debts they probably would have paid back anyway, if creditors had not begun threatening adverse actions.
Some payers have income low enough that they aren’t required to pay anything to nonpriority unsecured debts such as credit cards, medical bills, student loans, or personal loans, and are designed only to help pay off mortgages or car payments.
Most borrowers will fall somewhere in between these two extremes.
What happens after Chapter 13 is paid off?
You’ll receive a discharge hearing. The judge will verify you have satisfied your Chapter 13 requirements. Your creditors will have one last chance to object to your discharge.
At that point your case will be discharged and your debts will be forgiven. If you chose to keep your secured debts, such as your house or your car, you will keep paying on those debts.
For many, Chapter 13 will be a road back to sanity and a way to save their home. Not sure whether Chapter 13 is right for you? Contact our law office to get a free consultation today.
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