A Chapter 13 bankruptcy filing can provide you with relief from your debts. During a period of three to five years, you are required to pay off some or all of the debts that were included in your filing. Crafting a solid repayment plan is important because if you fail to do so, it could be rejected by the courts. Before filing your proposed plan with the bankruptcy court, here is what you need to know:
How Are the Payments Calculated?
During the repayment period, you are required to make monthly payments to a bankruptcy trustee. He or she will then take the payments and apply them to your debts. The amount that you are required to pay monthly depends on various factors, including your monthly income.
A major factor is how much of your income is considered disposable. The idea behind the repayment plan is to ensure that you are able to meet your monthly obligations, such as the mortgage and utilities, and still be able to pay down your debt. Disposable income is what is left after you have made payments on necessities.
Once the disposable income is determined, you have to factor in the administrative costs that come with filing for bankruptcy, such as the trustee's fees. You also have to consider what is in the best interests of the creditors.
What Does "Best Interests of the Creditors" Mean?
A Chapter 13 filing provides you with protection from your creditors while you make payments. It also ensures that the creditors' best interests are not forgotten. The best interests of the creditors basically refer to whether or not enough is being paid each month towards the debts that are owed.
For instance, if you have a mortgage, the trustee needs to know that he or she will receive enough from you each month to make a realistic cut in the amount that is owed to the mortgage loan provider. If not, you might be tasked with taking on another job or selling some of your assets to meet your monthly obligation.
You could even be forced to abandon the idea of filing for bankruptcy in favor of attempting to work out the debts with the creditors yourself. There is also the option of filing for a Chapter 7, which could mean a liquidation of some of your assets.
Before submitting the repayment plan, your bankruptcy attorney will review it to ensure that it meets all of the legal requirements.Share