How Much Do You Pay Back In Chapter 13 Bankruptcy?
Asking yourself if you pay back everything in a Chapter 13 bankruptcy? As an experienced Denver, Colorado Chapter 13 bankruptcy attorney, I can help you navigate the Chapter 13 bankruptcy process and give you an answer to that question during a free, initial consultation.
What Is Chapter 13 Bankruptcy?
Individual filers will usually file either Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy is the most common. About 80% of people who file bankruptcy will file Chapter 7.
People who file Chapter 13 usually do so because they make too much money to file Chapter 7. Chapter 7 bankruptcy has income limits. Individuals will also file Chapter 13 if they filed a Chapter 7 and got a discharge in the last eight years. They will also file Chapter 13 if they have assets that are more valuable than what they can protect from the Chapter 7 bankruptcy trustee. One of the most common assets that causes someone to file Chapter 13 is their home.
A Chapter 13 repayment plan will last from three to five years. How long someone’s Chapter 13 plan lasts depends on their before tax household income, their assets, their debts, and – in some cases – how much they can afford their monthly payment to be.
What Are The Benefits To Chapter 13 Bankruptcy?
Peace of mind. That is the biggest benefit of filing Chapter 13 bankruptcy.
As soon as your petition is uploaded to the bankruptcy court’s website, all collection has to stop. Foreclosures have to stop. Lawsuits have to stop. Repossessions have to stop. Garnishments have to stop. Phone calls and emails badgering you into making a payment have to stop.
Chapter 13 allows you to keep your home and all of your assets.
Chapter 13 will allow you to breathe easier. Instead of sending out multiple payments to your multiple unsecured creditors, you’ll just make one payment to the Chapter 13 bankruptcy trustee. That includes any payment plan you’ve set up with the Internal Revenue Service. You’ll still keep making your mortgage and car loan payments to those creditors.
Who Decides How Much I Pay Back In A Chapter 13 Bankruptcy?
How much you have to pay back to your creditors is set out by the Bankruptcy Code. That’s the federal law that was passed by Congress and signed into law by the President. The Code contains guidelines for the minimum amount someone can pay back their creditors. The bankruptcy court does not have discretion in deciding how much someone can pay their creditors. We have to follow the Code.
The Three Factors That Will Determine How Much You Have To Pay Back In A Chapter 13 Bankruptcy
There are three main factors that we look at to calculate how much someone has to pay back in a Chapter 13 bankruptcy:
This is usually the main factor that determines how much someone has to pay back in a Chapter 13. We use a fairly simple formula to determine disposable income. It’s after tax income minus necessary living expenses. Those are fairly common sense expenses, like rent or mortgage payment, utilities, car payment and transportation expenses, food, clothing, personal care, health insurance, out of pocket medical expenses, and reasonable retirement savings.
Let’s say that after we deduct your living expenses from your income, we show that you have $100.00 left over every month. Now, we multiply $100.00 by 60, which is the number of months you’ll be paying back what you owe in a Chapter 13 bankruptcy. That comes to $6,000.00. So, in your Chapter 13, you have to pay back $6,000.00 to your unsecured creditors.
These are assets that you could lose if you file Chapter 7. Again, in Chapter 13 bankruptcy you keep everything. However, in your Chapter 13 bankruptcy you have to pay back at least as much as your unsecured creditors would get in a Chapter 7 bankruptcy. Let’s say you have $10,000.00 more in home equity than you could protect in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, you keep your home, but you have to pay your unsecured creditors back at least $10,000.00.
Type of debt:
Certain debts have to be paid in full in a Chapter 13, no matter what your disposable income. The two most common types of debt that fall into this category are back taxes and mortgage arrears (when you have fallen behind on your mortgage payments). At minimum, you’ll have to pay back these amounts. But if your disposable income is $6,000,00 like I discussed above, you have to pay your taxes, mortgage arrears and your unsecured creditors $6,000.00.
A Chapter 13 bankruptcy filer has to pay the greater of the above three amounts. They also have to have the ability to pay the Chapter 13 payment. Let’s say someone has enough equity in their home to require them to pay $50,000 to their unsecured creditors but only has enough income to pay $20,000.00. Unfortunately, someone in that scenario will not be able to file Chapter 13 bankruptcy. They may be in a situation where bankruptcy may not be an option. I have seen this many times, and it usually involves someone who is older and on a fixed income.
Let’s also say someone owes $20,000.00 in taxes, but their disposable income only allows them to pay back $100.00 a month. Again, Chapter 13 is not an option. That person doesn’t have enough income to file Chapter 13 bankruptcy.
On top of what has to be paid to your creditors, you’ll also have to pay Chapter 13 trustee and your bankruptcy attorney fees.
Talk To An Experienced Denver, Colorado Chapter 13 Bankruptcy Attorney
We offer free consultations to individuals who are considering Chapter 13 bankruptcy. During the consultation, you’ll meet with a top-rated Denver, Colorado Chapter 13 bankruptcy attorney to discuss your options to manage overwhelming debt. The easiest way to schedule an appointment is by going to our scheduling page.