Chapter 13 Average Monthly Payments
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What Is the Average Monthly Payment in a Chapter 13 Bankruptcy?
Individuals who seek debt relief via the bankruptcy process have two options under the U.S. bankruptcy laws. They can file a Chapter 7 bankruptcy which involves liquidating their debts and assets. Alternatively, they can apply for a Chapter 13 bankruptcy which would allow them to reorganize or restructure their debts and preserve their assets.
Chapter 13 is considered a better option for those who wish to keep their assets and who earn a monthly income. After deducting their living expenses, petitioners who qualify for Chapter 13 bankruptcy must pay a portion of their debts at fixed intervals, usually monthly, via a court-approved debt repayment plan.
If you’re considering a Chapter 13 bankruptcy, you might wonder how much you must pay each month. There is no clear-cut answer to this question. The amount you’ll need to pay depends on several unique factors, such as how much you earn monthly.
Still, understanding how to calculate your periodic payment is important because it is a crucial component of your bankruptcy petition. Putting the wrong figures in could adversely affect your application; if it’s too low, it could be interpreted as you trying to be dishonest, but if it’s too high, it could be difficult to meet your obligations and survive at the same time. Striking a balance is the key to achieving success with your petition.
In this guide, we share how to calculate your average monthly payment and other details that could help you prepare to file Chapter 13. Remember you can always consult skilled bankruptcy attorneys for legal guidance and advice if you encounter any challenges.
Why You Need To Know Your Average Monthly Payment
Chapter 13 bankruptcy allows you to restructure your debts and repay the amount owed more conveniently. As such, you must outline how you intend to repay your creditors in a documented repayment plan.
Your proposed repayment plan is a comprehensive account of your income, expenses, and the nature of your debts. A good repayment plan must also state the portion of your future earnings that you intend to submit to the bankruptcy trustee toward the gradual liquidation of your debt at regular intervals (which could be monthly or biweekly).
The repayment plan must be filed in bankruptcy court at the same time as the bankruptcy petition or within 14 days after the petition is filed(although the court may extend the filing period in deserving cases).
If you fail to file the plan or if you file the plan without the required information, the court will have no reason to grant your petition, and it will likely be denied.
Hence, you must determine how much you can and should pay each month or within the period you choose before you file. The success of your petition depends on it.
How to Estimate Your Chapter 13 Monthly Payment
The amount of your average monthly payment is unique to you and depends on several factors, such as:
- Your current monthly income
- Your monthly expenses
- The total amount of debts you must pay
- The value of your tangible or intangible assets that are not protected under any bankruptcy exemption.
Once you have these details, you can follow the steps below to determine your Chapter 13 monthly payment.
Determine Your Disposable Income
Your disposable income is the amount of money you have left from your total income after deducting the cost of your living expenses, such as
- Transport fare
- Utility bills
Determine the Length of Your Repayment Period
The repayment period in Chapter 13 bankruptcy typically lasts 3 to five years. But you don’t get to choose how long you want the repayment period to last randomly.
Your average monthly income determines the repayment period based on what you earned in the six months before filing for bankruptcy. If that figure is less than the median household income amount for your state, your repayment would be for three years unless the bankruptcy judge approves an extension. It becomes five years if your monthly income exceeds the state’s median income.
The current yearly median income for an individual in California is $84,097. If you divide this figure by 12, you’ll get the median monthly income for an individual in the state. If there are multiple earners in your household, the median income will vary, and the calculations could become more complex.
Feel free to seek professional help from experienced bankruptcy attorneys if you feel overwhelmed at this point.
Categorize Your Debts
In a Chapter 13 bankruptcy, certain debts take precedence and must be fully repaid. These are known as priority debts and include payments related to
- Child support
- Income taxes
You must calculate how much you already owe in priority debts and how much you’ll owe in the future since many priority debts are payable continuously. Once you’ve identified how much you owe in priority debts, you can divide your monthly payments across your calculated repayment period.
If you have an outstanding secured debt such as home mortgage arrears, you’ll need to include it under your debt repayment plan or risk losing your property. You may also need to include any future mortgage payments in your repayment plan to ensure you stay caught up.
You may also have unsecured debts, that is, debts given without any form of security or collateral. Examples of such debts include personal loans and medical bills. While you are required to finance these debts to some extent, you can only do that with what’s left of your disposable income after paying your priority and secured debts.
Any unsecured debt left over would be discharged at the end of the repayment period.
Can the Court Increase Your Monthly Payment Amount?
The bankruptcy court may revise your average monthly payments if there are any positive or negative changes to your income. If you desire such a modification, it is up to you to approach the court and seek the necessary approval.
What Happens if You Miss Your Monthly Payment?
Your repayment plan under Chapter 13 requires diligent adherence to its terms. Once the court approves it at the confirmation hearing, you cannot change or modify it without court intervention.
If you fail to make your monthly payments without seeking permission from the court, your bankruptcy petition could be dismissed could lead to the dismissal of your petition.
You can convert your Chapter 13 bankruptcy to a Chapter 7 liquidation bankruptcy if you’re struggling to make payments. Contact an experienced bankruptcy attorney to learn how.
Do You Have Further Questions About Chapter 13 Bankruptcy Proceedings? Contact the Reputable Bankruptcy Attorneys at Chang & Diamond, APC, for Answers
Chapter 13 bankruptcy is a viable way to relieve the weight of financial hardship and chart a steady course toward debt relief. But the process is innately complex. There are many requirements to meet and even more documents to file.
The process also requires strict adherence to the rules, and non-compliance could adversely affect your chances of success. In these circumstances, it is understandable that you have many questions. That’s where we come in.
At Chang & Diamond APC, we are committed to helping our clients find their way out of financial hardship through bankruptcy. We have over 25 years of experience in bankruptcy law; therefore, you can rely on us to clarify any issues you have with the process, confirm your eligibility, identify what documents are needed to file Chapter 13 bankruptcy, and render any other related service to help you get started.
We serve clients in various counties across Southern California. If you’re in these areas, do not hesitate to contact us with your questions or concerns challenges regarding the bankruptcy system. Let us help you get clarity as you work to reclaim control of your life.