A Chapter 13 bankruptcy requires monthly payments for a period of 36 to 60 months. Contrary to popular belief, Chapter 13 bankruptcies are very effective and provide an affordable option for people to reduce and consolidate their debts. In many ways, a Chapter 13 is everything that a debt settlement should be and is, in effect, a court ordered and supervised debt settlement that really works because creditor participation is mandatory. The idea behind a Chapter 13 bankruptcy is for the debtor to do their reasonable best to pay back what they can.
As a bankruptcy attorney in Omaha, I frequently hear people that I meet with exclaim “If I file Chapter 13, I will have to pay all of my bills back!” NOT true in most cases. Yes, if you make a lot of money and are able to pay back your debts in full, then you normally will be required to do so over 60 months. But, the average Chapter 13 bankruptcy in Omaha calls for a repayment plan that pays only a fraction of what is actually owed. Some cases actually provide for a ZERO percent payback to the unsecured creditors. It all comes down to what is fair, reasonable and feasible. Sometimes people need the power of a Chapter 13 bankruptcy to stop something really bad from happening, such as a house foreclosure, wage garnishment or tax levy. Every case is different and each one needs to be considered on its own merits.
Once a Chapter 13 bankruptcy is deemed necessary, the next question that I get asked almost immediately is “How much will I have to pay each month for my bankruptcy?” Each state is different, but a good bankruptcy attorney in Omaha can give you a really quick and accurate answer. Here is a quick breakdown of the math and other requirements that are involved in determining the Chapter 13 bankruptcy plan payment:
1. Secured creditors. You must pay in enough each month to fund the purchase of your vehicles, arrears on your house (if any), furniture and household items (like payments to Nebraska Furniture Mart), secured tax liens and the like.
2. Priority creditors. Under 11 U.S.C. 507 of the bankruptcy code, certain creditors get “priority” in a bankruptcy and must be paid in full within 60 months. Although not a complete list, these creditors typically tend to be for income taxes (those incurred in the last 3 years are the norm), child support and alimony (pas due amounts only).
3. Chapter 7 comparison test. Bankruptcy Attorneys in Omaha and nationwide are commonly referring to the “Best Interests of Creditors” test. In a nutshell, this means that you must pay back your creditors in a Chapter 13 at least as much as they would have received in a Chapter 7 bankruptcy. As an example, if creditors would have received $5,000 if you would have filed a Chapter 7 case, then they must get that amount or more in a Chapter 13 bankruptcy in order for the Plan to be approved. Naturally, this may mean, in certain cases, that they payment must be more than a minimal amount.
4. Special provisions. There are many optional provisions in Chapter 13 plans. A typical example is for there to be special consideration given to consumer debts that have a co-signer. A Chapter 13 debtor may not want the co-signer to be stuck with the debt and may want to pay such a debt in full through the Plan. This is possible, but not necessarily required, in a Chapter 13 bankruptcy. Obviously, when these provisions are made, the payment must go up to cover the cost of the additional expense.
5. Attorney fees and Chapter 13 Trustee fees. The cost of filing bankruptcy in Omaha, Nebraska can, and normally is, paid through the Chapter 13 Plan. In other words, you normally only have to pay a small amount down to get your bankruptcy filed. Most cases are filed for $500 or less. The remaining attorney fee is paid over the next several years as part of your monthly bankruptcy payments. (As a side note, attorney fees are strictly regulated for bankruptcy lawyers in Omaha and Nebraska at large and will be the subject of a future blog). Finally, the Chapter 13 Trustee for the District of Nebraska receives anywhere between 5% and 10% to operate her office. These “administrative fees” are automatically calculated into your Chapter 13 payment and are deducted each month. However, on the bright side, NO INTEREST is charged on unsecured debts in the normal case, which really is a huge advantage compared to debt consolidation.
Overall, Chapter 13 bankruptcy relief is an excellent choice if you need to file bankruptcy. As mentioned, each case is unique and payment plans vary substantially. Monthly payments start at $125 per month in general and go up from there depending on the factors outlined above.