HOW IS A CHAPTER 13 BANRUPTCY PLAN PAYMENT COMPUTED?

HOW IS A CHAPTER 13 BANRUPTCY PLAN PAYMENT COMPUTED?

Determining how much a debtor will have to pay into a Chapter 13 Plan each month is partly governed by certain rules and partly by how much a debtor owes, what type of debt the debtor has and what is the income of the debtor. Most of the time when I meet with a debtor, the desire is to keep it all. This will not work if there is not enough income to pay the creditors. Chapter 13 allows for a debtor to make payments over time on most debts, may lower payments to some creditors and almost eliminate the payments to a lot of the creditors.

 Let’s take a typical, but, made up scenario. The debtors come to me and they are a husband and wife with two children. One or both of them lost their job and now they have new jobs. The new jobs pay less than the old ones and the debtors were spending most of their income each month on bills. While out of work, the debtors used credit cards to buy groceries, pay light bills etc.

 The credit card bills are past due, they are behind on the mortgage payments and the car payments. What are they going to do as all the creditors scream for their money, threaten them with lawsuits and/or foreclosure and these debtors are sure that there world is about to end.

The most pressing issue may be the cars. If the debtors are in default, the lender can come, at almost any time, to pick up a car. Income is coming in and it may make sense to call the lender, see if the lender will accept a payment and give the debtors some time to get their feet back under them. While the cars are a problem, they are also facing cut off of electricity and other utilities and there is a small problem of eating. Buying a month or two with income coming in and not paying except on the cars, utilities and groceries, the debtors may well be fine for a while.

 The debtors are, of course, worried about their house being foreclosed upon and the other creditors suing them, but, those creditors can usually be held off for a while. Getting a little money in the bank, paying me some money and just figuring out what the debtors want to do without the debtors feeling like they are going to be lose everything tomorrow is important.

 After a breathing spell, the debtors may determine that the car they bought just before the job loss can be gotten rid of. The money that is being saved can be used to buy a cheap used car for cash or for a very low balance owed.

The house is really not what the debtors wanted anyway and they are both upside down and the payments are much higher than rent. Maybe the debtors will simply decide to walk away from the house at the proper time and rent for a while. Maybe they will want to keep it because it is the house that fits their needs now and for the foreseeable future.

If the debtors keep the house, the lender can be forced to take the missed payments over a time of up to five years in length. No interest is paid on those payments and the debtors will begin making their regular payment to the mortgage lender one to two months after the debtors file bankruptcy. Paying back the missed payments if the amount owed is $12,000.00 in missed payments is going to going to be around $200.00 per month.

The debtors got rid of one car and the other is valued at $6,000.00. The old payment was $400.00 per month and the new payment is around $100.00 per month. The credit card and other unsecured creditor monthly payments totaled $800.00 per month and the debtors will pay $50.00 per month to the unsecured creditors to pay those creditors as much as the debtors can afford to pay.

This was a second marriage for the debtor wife and she fell behind $5,000.00 on her child support which she resumed paying on as soon she got a new job. The Family Court wants her to pay the missed money back in 24 months which would be impossible for her to do, but, in the Chapter 13 plan, this amount is paid back over a period of up to 60 months.

 The debtors also have student loans that are demanding payment now and are threatening garnishment which can happen for this type loan. Chapter 13 will keep the student loan creditor from taking any money from the debtors while the Chapter 13 case continues. The student loan will continue to accrue interest, but, hopefully the debtors will be able to pay the interest each year from their tax refunds and will be better off in five years. They have a child who is 4 years of age and requires daycare which is not cheap.

 Five years from now, the childcare expense should be lower to non-existent and that money will be available when the Chapter 13 is paid off to pay on the student loan as well as the amount the debtors were paying on their Chapter 13 plan.

 If childcare was 800.00 per month and the Trustee payment $400.00 per month, the debtors can pay a substantial amount to the student loan debt once they have gotten their other issues resolved. They have gotten pay raises or better jobs and their total debt is much less than they used to pay to their creditors.

 As you can tell, there are substantial variations in the amount paid to a Chapter 13 Plan in Bankruptcy. Meeting with a competent attorney such as myself early on may allow you to have a much brighter future than you think you could ever have. Call my office and schedule an appointment to come in and see me so we can make the plans for your future. 843-571-4042

 The amount your neighbor pays into a Chapter 13 Bankruptcy Plan will not, have any effect on the amount that you will have to pay. Sometimes you can even value a mortgage, but, that is something that is affect by your situation and not your neighbors’.

About Nathan Davis, Esquire

Born in Charleston, South Carolina, Nathan Davis has been practicing law for many years. Mr. Davis has a wide variety of experiences having practiced domestic relations, criminal law, social security law having also practiced collection law in the past. This knowledge is helpful when someone needs to restart their financial life. The practice is now primarily bankruptcy and debtor representation work, but, Mr. Davis continues to also practice real estate law, trusts and estates and a general litigation practice. I believe that the most important part of representation is trying to leave you better off when the case is finished than when you started. Although I will do as my client directs, I will always tell you if I think that you are making a mistake. Bankruptcy is about a "fresh start". If you do not make changes in what you are doing, you will be doing what you are doing now in the future. There is no shame in bankruptcy or other steps that you may take to start your life over. Too often, people worry more about things than about themselves, their family or their future.
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