If you plan to file for bankruptcy you can either, choose between reorganization or liquidation of assets. If, however, you wish to keep paying your debts and also wish to keep your assets secure you may choose to file for bankruptcy under Chapter 13. In this bankruptcy procedure, everything that is left after deducting your expenses (which means your disposable income) goes towards a repayment plan that is approved by the bankruptcy court.

Filing for bankruptcy is one of the best options for individuals facing financial stress and issues with their finances. But getting all the required paperwork and required documents together can get even more stressful. In this piece, we will tell you about the nuances of filing for bankruptcy and what all it involves. We will also tell you about the Average Monthly Payment for Chapter 13 in a Chapter 13 Repayment plan.

Let us begin by understanding a little about Chapter 13.

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Definition Of Chapter 13

When you file for bankruptcy under Chapter 13, you propose to pay some or all of your dues and debts over an agreed period of three to five years. The idea is to create a repayment plan according to which you will be paying a small amount every month. As a general rule, your Chapter 13 repayment plan will last anywhere between 36 and 60 months but should not exceed 60 months. Whether you qualify for a 36-month term or a 60-month term depends on whether your income for a period of 6 months before filing bankruptcy falls below or above the median income of the state in a household similar to yours.

If your income falls below the median income, your repayment plan can usually be anywhere between 36 and 60 months. It is obvious that you propose a longer period that will reduce your Average Monthly Payment for Chapter 13 as your payments will be stretched over a longer period of time. If your income falls above the median income, your repayment plan period can be 60 months but usually, the bankruptcy courts ask the proposers to propose a plan with a shorter period.

To find the median income of your state you can go on the US Trustee website. All you need to do is follow the path: Means Testing Information, Choose a date range, Select Median Family Income based on State and the Family Size.

Debts Included In Chapter 13

If you are filing for bankruptcy under Chapter 13 you will be required to make the payments as per the repayment plan. There are certain debts that must be paid in full when you are seeking relief under Chapter 13. Listed below are some of the debts that are included under Chapter 13:

Priority Debts

There are certain obligations that must be paid in the bankruptcy. These include the following:

  • Alimony and Child Support Payments
  • Unpaid State and Federal Taxes.
  • Wages to be paid to the employees.
  • Other priority debts including certain types of taxes.

The priority debts are a must to be discharged in bankruptcy. These top the obligations and liabilities list in any calculation and are a major.

Mortgage Arrears

If you have missed your mortgage payments, and wish to retain the house, you will be required to pay off all the arrears through the repayment plan proposed. However, if you plan to surrender the house, you won't have to pay any arrears. Certain states and areas may need you to make regular mortgage payments and if that is the case your Average Monthly Payment for Chapter 13 as per the plan will be quite large. However, in these areas, you will not have to make the payments directly to the lender.

Car Loans Or Any Other Secured Loans

Under most jurisdictions and states, you will have to pay your car loans and other secured mortgages in full. You will be required to pay off the entire loan through the payment plan. In some jurisdictions, you will be required to pay off your car loan irrespective of whether you are current or behind on the payments.

Some Other Unsecured Loans & Debts

You may have to pay certain other debts as well that is a part of Chapter 7 Bankruptcy but have some cumulative dues to be paid.

Administrative Fees & Costs

Average Monthly Payment Chapter 13 BankruptcyWhen you file for Chapter 13 Bankruptcy, the trustees involved earn money through the percentage of all the amounts that they distribute to the creditors through the repayment plan you have opted for. This percentage depends on the state you are living in and that can go up to 10 percent of the payment. You may also need to pay the interest on secured loans that you are paying through your repayment plan. The rate of interest depends on the claim type and the jurisdiction rules that would apply in the area. However, to talk in general terms you may need to pay the usual rate plus 1 percent up to 3 percent.

Now that you are aware of Chapter 13 Bankruptcy and What all Debts are covered under it, let us now look at how the Average Monthly Payment for Chapter 13 Calculated,

Calculation Of Average Monthly Payment For Chapter 13

The Calculation can be understood using the below two illustrations:

Case I: When Estimated Monthly Payment is $186 per month for 36 months (Lowest):

  • Trustee fee: $14
  • Attorney fee: $97
  • Administrative fee: $75
  • Mortgage payment: $0
  • Auto/Car loan payment: $0
  • Secured Payments: $0
  • Disposable Income: $0

Case II: When Estimated Monthly Payment is $2757 per month for 36 months (Highest):

  • Trustee fee: $87
  • Attorney fee: $97
  • Administrative fee: $75
  • Mortgage payment: $0
  • Auto/Car loan payment: $942
  • Secured Payments: $0
  • Disposable Income: $1556

So, you can get a fair idea of how the monthly payments in a repayment plan are calculated from the above examples.

Conclusion

To conclude, though filing for bankruptcy under Chapter 13 is a good idea, the entire process of arranging the paperwork, and filing for the same may get complicated. Moreover, the process of proposing and calculation of the repayment process can get all the more complicated. Through this article, you will get a general idea and estimation of the monthly payments you will need to make under Chapter 13 Bankruptcy. However, for more specific information you opt to talk to a professional or a bankruptcy attorney who can help you with all the rules applicable in your jurisdiction area.

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