Your Obligations Under a Chapter 13 Bankruptcy Plan
Learn which debts you must pay back when you file for
Chapter 13 bankruptcy.
To begin a Chapter 13 bankruptcy, you fill out a packet of forms -- mostly
the same forms as you would use in a Chapter 7 bankruptcy -- listing your
income, property, expenses, and debts. You file these forms and paperwork with a
nearby bankruptcy court. You must also file a workable payment plan proposing
how you plan to handle your debts over the payment plan period.
You must also file your tax return for the previous year, proof that you've
filed your tax returns for the last four years, and a certificate showing that
you've completed credit counseling with an agency approved by the United States
Trustee (go to www.usdoj.gov/ust, then click "Credit
Counseling and Debtor Education" for a list of approved agencies).
Under a Chapter 13 plan, you make payments, usually monthly, to the
bankruptcy trustee, an official appointed by the bankruptcy court to oversee
your case. The trustee in turn pays your creditors and collects a statutory
commission based on the amounts paid out under your plan. You must make every
payment, on time, in order to successfully complete your plan and get a
discharge of your remaining debts.
How Much You'll Have to Pay
Some creditors are entitled to receive 100% of what you owe them, while
others may receive a much smaller percentage (or nothing at all). Typically,
Chapter 13 bankruptcy plans must provide that:
Administrative claims will be paid 100%. These include:
- your filing fee ($274)
- the trustee's commission (3% to 10% of each monthly payment), and
- attorney's fees, if you hire an attorney for help with your Chapter 13
bankruptcy.
Priority debts will be paid 100%. These include:
- back alimony and child support
- most tax debts (including state and federal income taxes)
- wages, salaries, or commissions you owe to employees, and
- contributions you owe to an employee benefit fund.
Mortgage defaults
will be paid 100% if you want to
keep your house.
Other secured debt defaults
will be paid 100% if you
want to keep the property. Missed car payments fall into this category.
Unsecured debts will be paid anywhere from 0% to 100% of what you owe.
The exact amount depends on:
- the total value of your nonexempt property
-
the amount of disposable income you have each month to put toward your
debts, and
- how long your plan lasts.
Disposable Income
Your payment plan must commit to paying any leftover disposable income (your
income less certain allowed expenses and payments on secured loans, such as a
mortgage or car loan) towards your unsecured debts, such as credit card debts
and medical bills.
Length of Payment Plan
The length of your payment plan depends on your income level. If your
"current monthly income" (your average income over the six months prior to
filing) exceeds the median monthly income for a household of your size in your
state, your plan must last five years. If your income is less than the median,
you can propose a three-year plan, even if your unsecured creditors cannot be
fully repaid during that time. (To find the median income figures for your
state, go to the United States Trustee's website,
www.usdoj.gov/ust, and click "Means Testing
Information.")
Your "current" monthly income might be out of date. Because
your current monthly income, as calculated above, is an average, it may well be
more than your actual monthly income at the time you file. For instance, if you
were laid off unexpectedly three months before filing, your monthly income when
you file may be quite low -- as compared to your average income over the last
six months, which will have to include three months of your salary.
No Surrender of Property
If you file for Chapter 13 bankruptcy, you don't have to hand over any of
your property; instead, you repay your debts out of your income. In exchange for
getting to keep your property, your plan will have to pay your creditors at
least the value of your nonexempt property. (In
Chapter 7 bankruptcy, you must surrender your
nonexempt property to the trustee, who can sell it and distribute the proceeds
to your creditors. You do get to keep property that is exempt.)
Contact your Montgomery Bankruptcy Attorney or
Baltimore Bankruptcy Attorney to find out if you are eligible for Chapter 13.
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2010 Nolo