Chapter 13 Payment Calculation Shortcut
This simplified calculation will give you a general idea about whether you can afford a five-year Chapter 13 plan, the most common plan length. Here’s what you’ll do:
Can Businesses File For Chapter 13
Chapter 13s are not available for businesses, theyre only for individuals and families.
The Chapters that are available for businesses are going to be a Chapter 7, which would be more of a liquidation type of bankruptcy, or a Chapter 11, which is the big giant that you hear all kinds of different companies filing for, and then theres a subsection kind of a new bankruptcy, thats a sub Chapter 5 which is for small businesses, it kind of streamlines the Chapter 11 processes, but a Chapter 13 is simply for individuals and families.
How Does Filing Bankruptcy Affect Your Credit
Filing bankruptcy will affect your credit score for as long as it appears on your , though the negative impact does diminish over time. Chapter 13 bankruptcy stays there for seven years, while Chapter 7 is there for 10 years, and you should see your credit score recover throughout the years given you dont have any financial hiccups along the way.
Chapter 13 also has less of a blow because if you complete your repayment plan you will at least have established a track record of paying your bills.
If youre filing for bankruptcy, chances are your credit score wasnt that good to begin with. If it was good, it will plummet 100-200 points, regardless of which chapter you use.
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Which Debts Will I Actually Have To Pay Off
During the bankruptcy process, not all debts are considered equal or treated in the same manner. In fact, there are some debts that may not need to be paid back in full. During the bankruptcy process, your attorney and the court will evaluate and divide your debts into different categories. The debts will then either be prioritized for repayment or forgiven according to the following classifications:
- Priority Debts. These are items that are absolutely required to be paid off and will be included first in the repayment schedule. Examples of debts with this level of prioritization are: spousal support and child support payments, back taxes, bankruptcy filing fees and court fees.
- Secured Debts. These are debts that are backed by collateral, such as an auto loan, a home mortgage or a vacation home mortgage. Under Chapter 13, an individual may be required to pay back the value of the collateral or pay off the debt in full.
- Unsecured Debts. Considered the lowest rung on the debt ladder in a Chapter 13 bankruptcy, unsecured debts are items like medical bills, credit card bills and unsecured personal loans. Since these debts will receive the smallest allocation of payments in a repayment plan, it is possible that they may be discharged or reduced before the bankruptcy case is wrapped up.
How To Calculate Interest On Bankruptcy Claims
Unsecured creditors. Unsecured creditors usually repay 0% interest and fees on their claims. In Kentucky, our state courts allow a 12% interest on judgments by statute, but in Bankruptcy court, even judgments on unsecured claims are paid 0%.
This is a substantial saving. If you had to repay a judgment by garnishment in state court, the secured debt could double every five years. But in bankruptcy court, you only refund the principal amount of the secured debt.
Secured creditors usually are only repaid 1 or 2% above the prime interest rate if they only have a lien on personal property. I have often negotiated liens at 0%. Mortgages, however, get their stated interest rate at whatever is in the contract.
If you have a 5 % mortgage, it continues to be a 5% mortgage while it is in bankruptcy. The default or arrearage must be repaid plus any bankruptcy attorney fees and court costs that accrued before filing your bankruptcy.
Priority creditors get the interest they are allowed in their statutes. Priority unsecured debts include monthly income taxes less than three years old and State property taxes.
The IRS statute gives a 12% interest rate, while Kentucky gives a 12% rate to property taxes. Kentucky statutes allow a 12% rate for property taxes. Then, federal and state taxes are given the same consideration in repayment.
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The Chapter 13 Process
First, find a bankruptcy lawyer who will give you a free evaluation and estimate on what youll have to pay to file.
The cost to file Chapter 13 bankruptcy consists of a $313 filing fee and fees charged by a bankruptcy attorney. As for documents and other information, you must provide:
- A list of creditors and the amount of their claims.
- Proof of income.
- List any properties you own and any leases in your name.
- List your monthly living expenses.
- Provide tax information, specifically your federal tax return and any statements of unpaid taxes.
Chapter 13 petitioners cannot have had a bankruptcy petition dismissed in the 180 days before filing. They must also take a course approved by the U.S. Department of Justice U.S. Trustee Program in that 180-day span.
After you file your paperwork, youll then get a letter from the court clerk notifying you, your creditors and your court-appointed trustee that collection activities on your accounts have been suspended. That means creditors have to stop hounding you for payments.
You will propose a repayment plan, and a bankruptcy judge or administrator will hold a hearing to determine whether its fair and meets legal standards. Creditors can object, but most judges allow filers to alter their plans several times.
After that, its just a matter of sticking to your repayment plan. If youre late or miss payments, the trustee could move to dismiss your Chapter 13 case. You dont want that.
Requirements For Chapter 13 Bankruptcy
To be eligible for Chapter 13 bankruptcy, you must meet certain requirements:
- Debt limits: You must have less than $394,725 in unsecured debts and less than $1,184,200 in secured debts.
- Compliance:You must not have willfully failed to appear in court, failed to comply with court orders, or been voluntarily dismissed after creditors sought payment via bankruptcy court within the last 180 days.
- :Within 180 days before filing, you must have gotten from an approved agency.
- Income threshold:You must prove that you have enough surplus monthly income to meet the obligations of the new repayment schedule, as well as continuing payments on your mortgage and other secured debts.
These requirements apply to any individual, even those who are self-employed or running an unincorporated business. Corporations and partnerships may not file for Chapter 13 bankruptcy.
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More Reasons For Rejection
There are other reasons why the bankruptcy court may reject a Chapter 13 filing, reports DailyFinance. Frequently, people who are in financial trouble do not file tax returns. Before the 2005 reform of the federal bankruptcy code, tax records were not required from debtors. Now, tax returns for the four years prior to filing are mandatory for a payment plan to be confirmed.
If the court trustee isn’t convinced that debtors are able to afford the payments outlined in their case, a rejection is also possible. Sometimes when the individual’s earnings are weighed against expenses, the disposable income that is left will not cover the required payments in the timeframe set by the court. Under these circumstance, debtors may choose to convert their case to a Chapter 7 bankruptcy.
In addition, while those who file their bankruptcy under Chapter 13 may have more resources than those who are forced to file a Chapter 7 case, they must meet the same court requirements. In both types of court actions, debtors must submit similar documents, they must attend a meeting with the trustee and creditors and they are required to take two credit counseling courses. Without meeting those commitments, either type of bankruptcy will be dismissed by the court.
Get Legal Help From Reliable Jackson Bankruptcy Attorneys
There are different ways of dealing with debt settlement. One of these is looking into filing Chapter 13, which is one of the many types of bankruptcy proceedings that may apply to you. If you are considering bankruptcy, get in touch with a local attorney from a trusted Jackson bankruptcy law firm. Call us at the Rollins Law Firm to consult with credible Jackson bankruptcy attorneys.
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There Are Different Methods For Calculating Bankruptcy Chapter 13 Payments
When Chapter 7 is done, you are left back in debt for bankruptcy taxes, and if you have not cured car and mortgage defaults, those problems remain.
Chapter 13 plans must pay or cure secured and priority expenses or defaults. The monthly payment must be calculated to use your best efforts to repay. And this debt relief option must repay over time as much as Chapter 7 would have.
Average Monthly Payments In A Chapter 13 Bankruptcy Declaration
Many individuals with financial problems are curious about how much they will likely have to pay monthly if they file for reorganization bankruptcy.
A Chapter 13 petition for bankruptcy will likely necessitate a $500 to $600 monthly payment, especially for debtors paying at least one automobile through the payment plan. However, since the bankruptcy court will consider a large number of factors, this estimate could vary greatly.
When higher income and housing repayment requirements are involved, the average payment goes up to $1000 to $2000 or more. If you filed for bankruptcy to avoid foreclosure or are behind in house payments, your Chapter 13 plan payment could be more or less $1500 per month. Additionally, high income, high debt Chapter 13 filers would usually be required to make payments between $2000 and $3000, or even more.
On the other end of the spectrum, however, basic repayment requirements could go as low as $200 to $300 per month. This is often applicable to a debtor who was forced to file Chapter 13 because he is barred from filing a Chapter 7 .
Seasoned Jackson bankruptcy lawyers can help you learn more about these situations. Call our law firm today at 707-596-6641 to schedule a consultation.
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What To Consider Before Filing For Bankruptcy
Filing for bankruptcy is not a good idea for everyone. It is a serious step, and you should only file for bankruptcy if you know it will help you. You should talk to a lawyer before filing if at all possible.
Reasons to file:
- Some debts can be discharged , giving you a fresh start,
- Bankruptcy stops wage garnishment and harassment by collection agencies, at least temporarily,
- Foreclosures and repossessions are stopped for a time, and cannot move forward unless the court allows,
- You can keep certain, limited exempt property,
- You can stop utility shutoffs, or restore service after paying a reasonable deposit, then pay only for current service
- Employers and public agencies cannot retaliate against you for filing bankruptcy and
- If your driver’s license was suspended for not paying a debt that is dischargeable in bankruptcy, you could get your license reinstated.
Reasons against filing:
- Some debts, like, for example, student loans and domestic support obligations, might not be discharged ,
- Bankruptcy stays on your credit rating for 7 to 10 years,
- Getting credit may be harder or more expensive during or after bankruptcy,
- It may cause strain in relationships with some creditors and cosigners,
- You may have to return property that is not paid for , and
- You may be able to protect your income and property without filing bankruptcy.
Unsecured Debtspay 0% To 100%
Anything that doesn’t fall into the priority or secured debt category will be a nonpriority unsecured debt. These obligations share your monthly disposable income, which is the amount remaining after paying priority and secured obligations and allowed monthly expenses .
But the calculation isn’t complete. The last step will determine whether you have to pay more than your disposable income. If you do, you won’t qualify.
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The Chapter 13 Means Test
In simple terms, the Chapter 13 means test determines the basic structure of the repayment plan. It is divided into two forms Form 122C-1, which determines your average monthly income and the length of the repayment plan, and Form 122C-2, which determines the disposable income youre able to use to pay back your creditors.
Form 122C-1 requires the filer to add up all sources of household income. That figure is then compared to your states median income based on the number of people in your household and your marital status.
If your average monthly income falls below the state median, then your repayment plan can cover three years. If its equal to or higher than the state average, then your plan can cover five years. The length will ultimately be determined by the court, but this form sets a starting point as you work on the initial version of your repayment plan.
Form 122C-2 then uses your average monthly income as a baseline for determining the disposable income that can be used to pay back creditors. The filer can claim numerous deductions on everything from the cost of food to health insurance in order to determine disposable income, but the restrictions on how much can be claimed in each category are often strictly tied to IRS standards.
If you fudge the numbers or simply take your best guess at what you can claim under each category, youre going to run into problems when the court assesses your case.
Types Of Debt You Must Repay Under Chapter 13 Bankruptcy
If you seek debt relief and have decided to file bankruptcy under Chapter 13, you will be required to propose a payment plan that should enable you to repay debts in three or five years. It is generally recommended to seek legal advice from a credible local attorney before working on the necessary bankruptcy forms. Call our law firm at to schedule a consultation today.
The trustee in bankruptcy filings will work with you to allocate payments to creditors, particularly for the following:
Priority debts that you must pay in full include:
- Missed child support or alimony payments,
- unpaid federal or state taxes,
- wages owed to employees, and
- other priority debts that you must pay in full
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Can I File For Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often referred to as a consolidation plan or debt reorganization plan. Seeking financial relief under Chapter 13 enables an individual to catch up on late mortgage payments, late car payments and other nondischargeable financial obligations. Qualifying criteria for Chapter 13 are based largely on income and level of debt. In general, a Chapter 13 bankruptcy may be desirable for those who want to protect property and other valuable assets and who have some additional income that can be used to pay creditors.
Before Filing A Bankruptcy Petition
Bankruptcy can resolve your debt problems, but you should consider it a last-gasp option. Before deciding if you should file for bankruptcy, look for alternatives or advice that might be a less damaging choice. Some possibilities include:
Nonprofit credit counseling agencies provide free budgeting advice and suggestions for other debt-relief options. Churches, charitable organizations and government agencies also provide counseling without charge, or they can refer you somewhere than can help. The goal is to review your finances and suggest solutions for your debt.
Debt Management This is one of a few debt-relief programs that might make it possible to avoid filing bankruptcy. The primary goal of debt management is to reduce the interest rate on credit card debt and lower the monthly payments you make to an affordable rate. Debt management plans take 3-5 years to complete.
Debt Consolidation If you owe balances on multiple credit cards, a debt consolidation loan will allow you to pay off all the credit card debt and be left with a lower-cost loan repayment. Your credit score will influence whether the interest rate you pay offers substantial savings or not.
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Are Your Chapter 13 Bankruptcy Payments Too High
Your income from the six months prior to your filing will determine your Chapter 13 Bankruptcy payments. Given that the period of your bankruptcy could last up to 5 years, its entirely conceivable that your circumstances may change.
If your income has lowered since you originally filed, you may be eligible to apply to modify your payment plan. This will depend on the type of debt you have and the value of your non-exempt property. If your proposed lower rate of payment does not meet the minimum amount that is required to be paid to your creditors. You wont be able to reduce your Chapter 13 bankruptcy payments.
There are options available if you are experiencing financial hardship during your Chapter 13 bankruptcy including applying for a hardship discharge, a temporary suspension or dismissing your case altogether. Your attorney will be the best source of information on which option may be right for you.