Chapter 13, also known as a “wage earner’s plan,” is a popular alternative to traditional bankruptcy for people who simply need breathing room to deal with crushing debt. Chapter 13 bankruptcy allows debtors to keep their possessions and pay back creditors a percentage of their arrearages over a period of three to five years. What’s more, once the repayment plan is completed, the balance of the debt is wiped out.
As good as that sounds, Chapter 13 isn’t for everyone. To qualify, you must be able to demonstrate that you have steady sources of income, including wages and other forms of compensation like pensions or annuities. In addition, your income must exceed your recurring expenses so as to create a sufficient amount of disposable monthly income to make payments to creditors.
A Chapter 13 repayment plan sets terms for who will be paid back, how much they will receive and when the payments will be made. Certain past-due debts — known as priority debts — are required to be paid in full. These include child support, spousal support, certain income taxes and wages due to workers. In addition, past-due secured debts — those attached to specific assets like real estate and automobiles — must be paid in full if you wish to keep the underlying assets. Finally, the repayment plan factors in the value of any assets would not be exempt — meaning those that could be liquidated — if you were filing a Chapter 7 bankruptcy.
Adding up your disposable income, priority debts, secured debts and nonexempt assets produces the total amount that can be devoted to paying off creditors. Added to that total is the administrative fee — usually about 7 percent — that is payable to the bankruptcy trustee and attorney fees. The result is then divided by the number of months the plan will be in effect — for example, 60 months for a five-year plan — to calculate your monthly payment.
A Chapter 13 will be to your advantage only if your priority and secured debts are low enough to keep your monthly payout less than your monthly disposable income. Otherwise, you may have to relinquish secured assets or opt for Chapter 7 bankruptcy instead.
At Jeff Field & Associates, we can help you determine whether Chapter 13 is appropriate in your situation. We maintain offices in Scottdale, Marietta, Athens, Gainesville, Lawrenceville and Douglasville, Georgia. To schedule a free initial consultation with a legal professional, call 404-381-1278 or contact us online.
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