Researching the benefits of a 100% Chapter 13 bankruptcy plan? Read on! This article will give you information to help you make a decision about whether or not a 100% Chapter 13 bankruptcy plan is right for you.
What Is A Chapter 13 Bankruptcy Plan?
Chapter 13 bankruptcy involves repaying a portion or all of your unsecured debt by making monthly payments to the Chapter 13 bankruptcy trustee for three to five years. While the main reason someone files a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy is because their household income is over the median income, there are other reasons as well.
For instance, if someone’s home has more equity than the Colorado homestead exemption protects, they might file a Chapter 13 bankruptcy to avoid the home getting sold in a Chapter 7 bankruptcy.
There are three primary factors that determine how much someone will have to pay their unsecured creditors in a Chapter 13 bankruptcy: their disposable income, the kinds of debt they have, and their assets.
Calculating someone’s disposable income is fairly straight forward. It’s basically how much money someone has left at the end of the month after they have paid their necessary living expenses, like their mortgage payment, utilities, car payments, transportation expenses, food, utilities, etc. Let’s say it’s $500.00. They’ll pay their unsecured creditors $500.00 a month for 36 to 60 months, depending on whether or not they’re eligible for a three year or five year plan.
A Chapter 13 plan can also be based on the kinds of debt someone has. Some debts have to be paid in full in a Chapter 13 bankruptcy plan. The most usual debt that has to be paid in full are back taxes from the three to four years before the Chapter 13 bankruptcy is filed. Let’s say someone owes $10,000.00 in back taxes from two years before their case is filed. At minimum, their Chapter 13 plan will have to pay that amount over 36 to 60 months.
Finally, we have to look at the filers assets. If they have any personal belongings or real estate that is worth more than they can protect if they were to a file a Chapter 7 bankruptcy, their unsecured creditors have to get at least that much in a Chapter 13 bankruptcy plan. So, if someone has $300,000.00 in home equity, but we can only protect $250,000.00 of that equity, they have $50,000.00 of non-exempt (unprotected) equity. If they were to file a Chapter 7 bankruptcy, the Chapter 7 trustee could sell the house to access that $50,000.00 to give to their creditors.
In a Chapter 13 bankruptcy, the filer gets to keep her home. There isn’t any risk of the Chapter 13 trustee selling the home. However, the filers have to pay their unsecured creditors at least $50,000.00 over 36 to 60 months.
What Is A 100% Chapter 13 Bankruptcy Plan?
A 100% Chapter 13 bankruptcy plan means that the filer is paying 100% of what they owe to their unsecured creditors. Using the home equity example above, if that filer only has $25,000.00 in unsecured debt, that is less than the amount of non-exempt home equity they have. That means they have to pay 100% of their unsecured debt.
What Are The Benefits Of A 100% Chapter 13 Bankruptcy Plan?
Naturally, when I tell someone that they’ll have to pay 100% of their unsecured debt they ask why they would file a Chapter 13 bankruptcy. The answer really depends on their situation.
If they have too much home equity to file a Chapter 7, a 100% Chapter 13 bankruptcy plan will protect the house and allow them to pay their creditors over three to five years. In addition, the Chapter 13 bankruptcy will protect the filer from debt collectors who might try to garnish their bank account or paycheck.
To be sure, there are situations where a 100% Chapter 13 bankruptcy plan doesn’t make sense, like when a Chapter 13 plan payment would be higher than their normal debt payments.
A 100% Chapter 13 bankruptcy plan may also not be feasible. For example if the asset analysis requires the filer to pay the bankruptcy trustee $500.00 a month, but they only have $100.00 a month in disposable income, Chapter 13 is not an option. The filer has to have sufficient income to pay the Chapter 13 plan payment.
Talk To A Top-Rated Bankruptcy Attorney About The Benefits Of A 100% Chapter 13 Bankruptcy Plan
We have guided hundreds of clients through successful Chapter 13 bankruptcy plans, from start to finish. If you’re thinking about Chapter 13 bankruptcy, we offer free consultations with an experienced Chapter 13 bankruptcy attorney for you to learn more about the process, including the benefits of a 100% Chapter 13 bankruptcy plan. The easiest way to schedule an appointment at a time that is convenient for you is by clicking here.