Chapter 13 – Commonly known as “Reorganization”

We can evaluate your situation and if you decide to take advantage of Chapter 13 relief, we will guide you throughout the process.

Reorganization and repayment is the mainstay of a Chapter 13 plan that you’ll propose to the bankruptcy trustee, creditors, and the court. To a significant degree, two factors will determine your Chapter 13 plan type and monthly payment amount:

your disposable income (the amount remaining after subtracting allowed expenses), and the value of any nonexempt assets (property that you can’t protect with an exemption).

A debtor whose income doesn’t exceed the state’s median income can submit a three-year plan. You can see the State median Income at the link HERE.  All others must submit a plan lasting up to five years.

Calculating Disposable Income

Every three- to five-year Chapter 13 repayment plan must fully pay:

  1.  mortgage arrearages (if you’re keeping a house)
  2. car loan arrearages (if you’re retaining a car), and
  3. priority debt, such as domestic support obligations and most overdue tax debt.

But that’s not all. Most people must pay something to the holders of any remaining debt, such as medical balances, utility bills, personal loans, and credit card bills (your unsecured debt).

To determine the amount you’ll pay to unsecured creditors (called disposable income), you’ll subtract actual and predetermined expenses from your income, such as:

  1. mortgage or rent (reasonable and necessary)
  2. car payment and maintenance costs
  3. food, clothing, and utility expense
  4. monthly tax and support obligations, and
  5. childcare costs.

The remaining amount is disposable income that must be paid to unsecured creditors. It’s distributed on a basis such that each creditor receives a portion equal to its percentage of overall debt.

After completing the repayment plan, most unsecured debt balances will get wiped out, but not all. For instance, even though unsecured student loans get paid with other unsecured debt, you will remain responsible for any unpaid balance.