Chapter 13 Payments: How much will I have to pay?

A chapter 13 bankruptcy is a finantial reorganization.  You pay a fixed amount each month for 3 to 5 years (or less).  In return, you may be eligable to modify liens, keep property you'd lose in a chapter 7, or qualify for bankrutpcy with a high income.

By far the most common question is "how much will I have to pay?"  There are two answers to that question.

Chapter 13 is, by definition, affordable.  You pay your disposable income each month; that is, your income minus your reasonable and necessary expenses.  Take all your income from employment, self-employment, support, assistance, etc.  Subtract withholdings, and all your other monthly obligations (except your debt): food, clothing, maintenance, taxes, transportation, child care costs. . . you get the idea.  Whatever is left over, that's what you pay.  It might be $50, or $500, or $5000.

Who decides what you spend on these things?  YOU!  Of course, the expenses must be both necessary and reasonable.  But every person's situation is different, which is why the courts leave this to common sense and reason.  Age, household size, income, and location are all factors.

Also, keep in mind that your disposable income is used to pay all of your debt - including secured debt on property you keep, like your house and cars.  The number may seem high for that reason.  Unsecured creditors, like credit cards, medical debt, and personal loans, only get whatever is left over.  They do not necessarily get 100%; in many cases they get less than 10%.  The rest is discharged!  You do not have to pay everything 100%.

There is one other consideration.  You must pay your unsecured creditors at least as much as they would have received in a chapter 7. In most cases, this number is 0, because the exemptions protect all of the property in a chapter 7, leaving nothing for the creditors.  However, if the number is higher, then you must pay at least that amount within 5 years or less to your unsecured creditors.

In sum, your chapter 13 payments are your disposable income (income minus reasonable and necessary expenses) with your unsecured creditors getting no less than what they would have received in a chapter 7 (usually, nothing).

When Is It Time To Consider Filing for Bankruptcy?

There are a number of "red flags" which indicate it's time to at least talk to a bankruptcy attorney:

• You're falling behind on monthly bills to make your minimum credit card payments;
• You've considered calling a debt settlement company, or have called one;
• You're at risk of having a vehicle repossessed;
• You're at risk of having your home go into foreclosure;
• A creditor is demanding a deficiency payment after a repossession or foreclosure;
• You're mortgage company is offering you a "short sale" to avoid a deficiency;
• A debt collector is threatening to, or has already, sued you;
• You're afraid of money being garnished from your wages or bank accounts;
• You've considered pulling money out of your retirement to pay bills;
• You're thinking about transferring assets to protect them from creditors;
• You're income will be increasing in the near future (potentially affecting your filing);
• You may have an inheritance coming in the next few years;
• You're losing sleep, stressed out about your debt, and the phone won't stop ringing.

If one or more of the above apply to you, you should go talk to a local bankruptcy attorney immediately. Bankruptcy might not be the answer, but better to ask too early than too late. There may even be factors which indicate bankruptcy is not right such as recent large payments to creditors, payments to relatives, recently incurred debt, or an eminent inheritance.

But too often the stigma surrounding bankruptcy alone discourages people from even asking for information until it's too late, resulting in lost time, money, and property.  Most attorneys (including me) charge nothing for the initial consultation.  

It's confidential and there is no obligation.  So why not get the information?

Save your retirement, property, and your sanity; you're going to need all three!