How does a Chapter13 Bankruptcy plan actually work?

A Chapter13 plan is a very complicated mathematical computation which is why you should always have an attorney when filing Chapter 13.  A Chapter13 plan is determined by three factors, your income, your expenses and your assets.  The court only will approve a Chapter13 bankruptcy if you can afford it which is why it’s such a powerful tool.  For instance, if you bring in $1000 a month in income and have $800 a month in expenses, the court won’t approve a Chapter13 repayment plan of over $200 a month.  This is good for some people and bad for others because your Chapter13 plan has to be something called feasible.  You have to show that you’re able to make the payments.  For instance, if you only had $800 in income but $1000 a month in expenses, you wouldn’t qualify for Chapter13 because you wouldn’t have any money left over to pay back your creditors.

It is very complicated to discuss why the percentages, why you would pay anywhere from 10% to 100% but it should always be the goal of your attorney to have you pay the least amount of money possible for the shortest amount of time possible with balancing the interests of getting your case approved and giving you a solid reorganization of your debt.

A third factor to consider when discussing Chapter13 bankruptcy is your assets.  As I discussed earlier in this discussion, if you have assets that would not otherwise be protected in a Chapter 7 bankruptcy, you have Chapter13 as an option where you can protect those assets which your creditors, through their representatives the trustee, would allow you to keep those assets but you would have to pay back your creditors at least the value of those assets.  For instance, if you had a car that was worth $50,000 and that you owed no money on, you would have to pay your creditors back at least the $50,000 in order to keep the car.


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