Bankruptcy is sometimes inevitable. It is not one of the most favorable situations to be in. But it is important to make the right moves to be able to come out of bankruptcy and to evade the creditor’s torture. When thinking or learning about bankruptcy, Chapter 7 and Chapter 13 discussions are very common. Chapter 13 is a better alternative than Chapter 7 in most cases. In case you need to determine which is best for you and why; do not hesitate to log on to Recovery Law Group to gain a deeper insight.
What is Chapter 13 bankruptcy plan?
The best part of the Chapter 13 payment plan is that you do not have to do away with all the assets but instead you find out the best way to payout your debts. Unlike Chapter 7 arrangement, this plan is much more reasonable and practical. Based on the debt type, you make an agreement with your lenders on a payment schedule based on your disposable income. The debt is consolidated, and a part of the debt is released once you make regular monthly payments as per the Chapter 13 payment plan for a period of 3-5 years as agreed by the lenders.
How to make a payment plan?
The tenure is the most important aspect of the payment plan. The tenure is decided by the court on the basis of your average income in the recent 6-9 months. The income can be from any source passive, active, consistent, inconsistent, social security or retirement benefits also. The tenure of 3 years arrives if the average income then realized, is lower than the state median. To get a fair idea of the state median, California state had a median of about $52,000 in the 2017s for an individual and about $80,000 for a family of four members. If your average income before filing bankruptcy exceeds the state median, the tenure will be for 5 years.
The payment plan will expire before three or five years only if you clear all your outstanding dues in full. The next step is to determine your minimum due. As per the Chapter 13 bankruptcy plan, the secured debts are prioritized and need to be paid in full. Other priority debts may include alimony, taxes, child support, mortgage interest, etc. These kinds of debts shall dominate the bulk of the minimum due payments. Apart from these, certain fees like attorney, filing and percentage fee for a trustee, etc., also need to be paid out fully.
How to calculate your disposable income?
If your average income in the last 6-9 months is below the state median, the unsecured debts might get released completely. This will hurt your credit score but your minimum due will constitute minimum due towards the priority debts and the secured ones. There are possibilities for loan trimming even for the secured debts, especially for the high depreciating assets like an automobile or similar assets. If your average income is over the state median, the disposable income has to be directed towards the unsecured debts. The disposable income is lower of 15% of the average income or the calculated disposable income.
The calculation of disposable income is straight forward. The state and federal standards for all basic amenities have been provided and one can deduct only the standard amount irrespective of the actual expenditure for determining disposable income. The difference between your average income and the standard deductions will give you your disposable income. For instances, in Los Angeles, the cap for transportation cost is $189, if you do not own/use your own vehicle. It is $300 as an operating cost for people using their own cars. Similarly, the standard for a mortgage in case of a family of four is around $3,000. Food, clothing and other basic need expenses are also capped to about $650 as per federal standards. These are rough monthly standards, which are not the latest but give you a rough idea of what your disposable income could be. For more information or for any calculation help do not hesitate to reach out on +1 (888) 297 6203.
Getting your Chapter 13 payment plan approved
The bankruptcy court has to approve the proposed payment plan. Hence, it is important to put forward a practical plan forward that caters to best self-interest as well as the interest of the lenders. If the plan is not confirmed or approved, it holds no value. The bankruptcy trustee and lenders can object or force modifications in the plan if they are not convinced or satisfied. Automobile lenders or mortgage lenders are two prominent objection parties when putting forward the payment plan in the court. The bankruptcy trustee emphasizes on following of rules and will try to divert as much funds possible to the lenders during the process. So, if your plan satisfies your automobile and mortgage lender as well as compliant with the rules, it has a very high probability of getting approved.
How to avail Chapter 13 release of unsecured debt?
The bankruptcy court has certain guidelines in place for releasing an unsecured debt and it is not so straightforward. You need to complete all the payments, still be current on support debts like alimony, child support, etc., and also complete a financial management course that shall help you manage finances better and not be stranded here again. Additionally, you should have also not received a discharge of your debts in the recent 2 years in order to be eligible for the release of unsecured debt. If you comply with all these, the court shall release the unsecured debts and the lenders shall no longer be able to pursue you for their debts.
An important point however to be noted is that some debts like criminal fines, litigations, lawsuits, child support, student loan, compensation for injury or similar debts cannot be released by the bankruptcy court. These are priority debts and need to be paid off without deviation. For Chapter 13 cases, an attorney is a must and the best in business is just a call away. Dial +1 (888) 297 6203 now for the best solution to your bankruptcy problem!
