How the Court Determines Your Payments for a Chapter 13 Bankruptcy
Despite the fact that it generally costs the petitioner more money, there are a number of reasons a bankruptcy petitioner might choose to file under Chapter 13. These reasons can include a desire to minimize the amount of time that the bankruptcy will negatively impact their credit score, or because they don’t meet the income requirements to file under Chapter 7. Chapter 13 is known as the debt restructuring form of personal bankruptcy, as it consolidates a number of debts into one monthly payment that the petitioner makes for a period of three to five years.
If you are considering filing under Chapter 13, you might be wondering how the bankruptcy court determines what you’ll pay each month, and for how long. This payment is determined based on several tests and factors. As we discussed in a previous post, the U.S. Bankruptcy Court publishes a means test, which is based largely off the median income for the state in which you live. Whether or not your household income is below or above the median income for a Kentucky household of your size will have an impact both on how much you pay toward your debts, and the length of time for which you must make payments. If your income is below the median, then you can choose a plan that is between three and five years. A longer repayment plan will result in lower monthly payments. Those with an income above the median will usually have to enroll in a five-year repayment plan, unless other circumstances apply.
The amount of your monthly payment will also depend on the amount and type of debts you possess, and whether or not they are of a type that must be paid off in full through bankruptcy. “Priority debts” must be fully paid through bankruptcy. These forms of debt include child or spousal support payments, some tax debts, administrative fees to the court, and attorneys’ fees. If you want to keep your home, but are in arrears on your mortgage, you will need to pay those arrears fully through bankruptcy to prevent foreclosure. Additionally, if you have other secured debts, such as a car loan, you will be required to make payments toward that loan while on your bankruptcy payment plan.
The amount you pay toward your unsecured debts, such as credit card or medical debt, will vary based on your income. If your income falls below the statewide median, then you might end up paying little or nothing toward your unsecured debts. If your income is above the median, then the amount you pay will depend on your amount of disposable income, or income beyond the amount you pay for necessities like food and shelter. If you own property which wouldn’t be classified as exempt under a Chapter 7 bankruptcy, you’ll need to include the value of that property in the amount you pay back under your Chapter 13 plan. Basically, the court wants to ensure that you pay at least as much toward your unsecured debts as you would have had you filed for bankruptcy under Chapter 7.
If you have questions on what to do about mounting debt, and whether filing for bankruptcy in Kentucky under Chapter 7 or Chapter 13 might be better for you, contact the knowledgeable and dedicated Bowling Green bankruptcy lawyer Lanna Kilgore for a consultation on your case, at 270-846-3700.