Chapter 13 bankruptcy allows you to pay back debts over a few years. To ensure you follow through with these payments, the bankruptcy court requires you have to have a solid court-approved plan. Drafting a repayment plan is not easy. You will first have to pass a means test and then thoroughly evaluate your finances.
Bankruptcy is a complex area of the law involving both state and federal regulations. Attempting to create a Chapter 13 repayment plan is not a do it yourself project. Contact an attorney who specializes in Chapter 13 to ensure your repayment plan meets the standards of the court.
Bankruptcy Attorney in Dallas County
It is advised you speak with a bankruptcy attorney before you file for Chapter 13 bankruptcy. Applying for this form of debt relief is not an easy process. You will be required to submit mounds of paperwork, including an intricate repayment plan. Linda Littlefield has been helping consumers and small businesses with bankruptcy issues for nearly 25 years. She is a trusted advocate in the Dallas legal community who will put her experience to work for you.
Call (972) 812-0900 and take advantage of our free consultations. Littlefield Law Firm assists clients in Dallas County, Collin County, Kaufman County and Rockwall County.
- Elements of a Chapter 13 Repayment Plan
- Means Test in Chapter 13
- How are Payments Determined?
- Debts Covered by Chapter 13
- Additional Resources
Elements of a Chapter 13 Repayment Plan
Debtors with an income above the state median can file for Chapter 13 debt relief. Setting the two apart is how the debt is dealt with. In Chapter 7, non-exempt assets are liquidated to pay off creditors. A payment plan is created in Chapter 13 that allows debtors to make regular payments over three to five years. If regular payments are made over that time, then some, and possibly all your debts may be discharged.
A Chapter 13 repayment plan is a legal document explaining how you intend to pay back your debts. Payments are typically made on a monthly basis to the bankruptcy trustee, the official appointed by the court to oversee your case. In turn, the trustee will pay your creditors.
This plan is required to be filed in bankruptcy court no later than 14 days after filing for Chapter 13 relief. The court will review your plan and hold a hearing where your creditors will have a chance to make any objections. It may take up to three months after filing for the plan to be approved, but you will still be required to make payments within 30 days after you file.
Failing to make payments will not reflect well for your bankruptcy case. Doing so can lead the court to dismiss your case which would mean you are still on the hook for all debts.
Means Test in Chapter 13
Chapter 13 bankruptcy uses a means test to determine the structure of the repayment plan. The test will calculate your average monthly income and disposable income you can use to pay back debts. The Chapter 13 means test is tedious, so consult with an attorney before embarking on the process.
To determine your repayments, you will first need to add up all sources of household income. You will then compare that number to the Texas median income based on your family size. According to the United States Department of Justice, the median income for Texas households include the following:
- 1 Person: $47,238
- 2 Persons: $63,148
- 3 Persons: $69,294
- 4 Persons: $78,572
- 5 Persons: $86,972
Once your income is determined, you will need to calculate how much disposable income you have to pay back creditors. You can deduct various expenses such as the cost of food and health insurance. However, how much you can claim in each category is restricted to IRS standards. Whether you will have to pay for three or five years largely depends on your income. A plan will typically last five years if you make more than the median income. If you make less, however, your plan will last three years, but you must have enough disposable income to pay back creditors
You will run into problems during proceedings if you fudge the numbers or guess on your expenses. Doing so can cause your case to be dismissed, which will result in starting the process over.
How are Payment Determined?
The formula used to determine monthly payments will take numerous variables into account such as yearly income, the amount of priority debts and yearly expenses. However, calculating this number is not easy. While you may be able to do it by hand, bankruptcy attorneys rely on a computer software to ensure the calculation is solid.
There are many ways to determine monthly payments. One way is a more streamlined process that involves subtracting yearly expenses from yearly income, adding priority debts and non-exempt assets and then dividing that number by the number of months in your plan.
For the sake of an example, lets assume you make $50,000 a year and you have $40,000 in yearly expenses. By subtracting these numbers, you have $10,000 left over. You will then add $15,500 (priority debts) and $8,000 (non-exempt assets). This comes out to $33,500 that needs to be paid during the plan. This number will then be divided by 60 (total number of months in the plan), which comes out to be $558 per month.
Debts Covered by Chapter 13
Various debts will need to be paid back under Chapter 13. Not all debts are treated equally, and some might not have to be paid in full. Generally, all debts are split into three different categories in a Chapter 13 repayment plan. These debts include:
- Priority debts: As the name implies, priority debts are granted top priority by the Bankruptcy Code. These debts are non-dischargeable and must be paid in full during your repayment plan. You will still be required to pay priority debts, even if you receive discharge. Common debts in this category include child support, back taxes and criminal fines.
- Secured debts: Secured debts are debts backed by property like mortgages and auto loan, for instance. You may be required to pay back either the value of the collateral or the full cost of the debt during your payment plan.
- Unsecured debts: Unsecured debts are the lowest priority. These debts are not backed by collateral, and they often include medical bills and credit cards. It’s likely creditors of unsecured debts may not be paid in full by the end of your payment plan.
The Plan | Bankruptcy Code – Read the section of the Bankruptcy Code over Chapter 13 payment plans. You can find out why a plan would be revoked, if you can modify a plan before it’s confirmed and information that must be included. The statute can be read on the Legal Information Institute, an online legal resource provided by Cornell Law School.
Chapter 13 Basics | United States Courts – Visit the official website of the United States Courts to learn more about Chapter 13 bankruptcy. By accessing the site, you can learn about the advantages of Chapter 13 and how the process works.
Bankruptcy Lawyer in Dallas
It’s vital the court accepts your payment plan. Without it, you will not be able to go through with the Chapter 13 process. Littlefield Law Firm will make sure all the necessary information is included in your plan to ensure you get the financial relief you need.
Call (972) 812-0900 to schedule a time to speak with Linda Littlefield. We are based in Dallas, but regularly help clients in areas such as Plano, Talty and Heath.