What is Paid Back in a Chapter 13 Plan?
In a Chapter 13 plan, you are looking at paying back a percentage of your unsecured debt to your creditors. This percentage will be determined by how much you can afford to pay back. Like I tell my clients, this percentage is different for each and every debtor because no one financial situation is the same.
If my client A and Client B have the same amount of unsecured debt, Client A could be paying back 1% to their unsecured creditors while Client B is paying back 50% in a Chapter 13 plan. Doesn’t seem fair you say, but this system was designed to help each and every debtor make it work.
This percentage is determined first by taking a look at your net household income per month. Then we subtract out your household expenses for the month to give us your disposable income per month.
Household expenses look something like this: (mortgage/rent, electricity, water, telephone bill, internet, cable, gas, food, household supplies, laundry, dry cleaning, personal grooming, child care, medical bills paid out of pocket, insurance, taxes, HOA, alimony, child support, car payment, etc.). As you can see, these expenses do not include payments to credit card companies because you will not be paying these back on your own going forward.
Say your net income per month is $3,000.00 and your monthly expenses are $2,500.00 per month. Your disposable income is $500.00 per month. Your attorney will work with you to formulate a plan to submit to the bankruptcy court for confirmation. Usually, the Trustee will want all or most of your disposable income in your payment plan.
In this example of a Chapter 13 plan, you will be looking to pay back $500.00 per month for the next 3-5 years into the Plan. The Trustee’s office will disburse your money each month to your creditors based on priority. When your plan is complete in 3-5 years, you will be debt free from your unsecured creditors. $500.00 per month could mean you are paying back as low as 1% back to unsecured creditors. It all just depends on the amount of your total unsecured debt.
If you are keeping a home in the Chapter 13 Bankruptcy, you are responsible for paying your regular mortgage payments outside the plan each month. Failure to do so puts you at risk of losing your home.
Should you have further questions regarding Chapter 13 bankruptcy and your own unique financial situation, please do not hesitate to contact our office to speak with an attorney today. We are here and we are ready to help.
Lam Law Firm, LLC •1335 44th Ave North • Suite 100 • Myrtle Beach, SC 29577
DISCLAIMER: The information contained on this page is for general information, only. It is not intended to be legal advice, nor should you make legal decisions based on this information. Please consult one of our attorneys to see how the law applies to your particular situation.