If you’re considering personal bankruptcy to give you relief from your financial stress, you should know that individuals generally file Chapter 7 or Chapter 13 bankruptcy. Chapter 7 is typically used by people whose income is below the median income for their household size. Chapter 13, on the other hand, is used by people whose income is over the median income. Another common reason people file Chapter 13 is to get caught up on mortgage payments.
The biggest difference between the two chapters is that Chapter 7 typically doesn’t require filers to repay any of their unsecured debts (debts such as credit cards, medical bills, broken leases, or car repossessions, etc.), whereas Chapter 13 does.
When we calculate your monthly payment to the bankruptcy trustee, we use Form B22C, also commonly called the “means test”. The first factor which determines how much you’ll repay is whether you are above or below the median income for your household size. The median income is determined by the United States Census Department and changes once or twice a year. If you are below the median income, your repayment plan will last 36 months and will be based on how much money you have left over after you pay your “reasonable and necessary expenses”. In a 36 month plan, we’ll be able to use your actual expenses.
If your household income is over the median income, we have to refer to the IRS standards for certain expenses to determine how much your monthly payment to the bankruptcy trustee will be. Those standards provide deduction amounts for such things as your rent or mortgage, utilities, out of pocket medical expenses, food, clothing, and vehicle ownership and operating expenses.
We can also deduct expenses for child care, health insurance, employer retirement accounts, child education expenses, life insurance, court ordered payments, charitable contributions, and a few others.
In either an above or below median Chapter 13 case, we’ll also deduct any amounts that need to be paid to get caught up on a mortgage or to repay taxes or back child support.
Once we deduct all of these expenses from your gross (before tax) monthly income, we’ll have your “projected disposable income” or PDI. That is the number that you’ll pay every month to the trustee.
Navigating a three to five year Chapter 13 bankruptcy can be challenging. For example, not all of your current expenses may be deductible and you may have to make changes in certain expenses. If you have questions about how Chapter 13 bankruptcy might help you, we hope you’ll come in for a free, no-obligation consultation with an experienced Colorado bankruptcy lawyer. You can schedule an appointment by calling 303.331.3403 or by using our online scheduling system.