3 Questions to Help You Gauge the Value of Unsecured Debts to Repay in Chapter 13 Bankruptcy
If you are filing for Chapter 13 bankruptcy, one of the top questions on your mind might be how much of your debt you will have to pay. Well, there are basically three questions whose answers will help you answer this question. Here are the questions.
Which Types of Debts Do You Have?
There are two groups of debts in Chapter 13 bankruptcy; one group you have to pay completely, while the other you don't. Here are a few examples of the priority debts that you must pay in full:
- Child support
- Alimony
- Wages owed to employees
- Legal fees you owe to your bankruptcy lawyer
For secured debts, the question is whether you intend to keep the properties or not. For example, you must pay your mortgage fully if you want to keep your house. As for unsecured debts, you don't have to pay them in full; the repayments can range from 0% to 100% depending on other factors.
What Is the Value of Your Non-Exempt Property?
In Chapter 7 bankruptcy, the exempt properties are those that you can keep while the non-exempt ones can be sold to pay off your debts. In Chapter 13 bankruptcy, your non-exempt property isn't used to repay your debts; rather, their value determines how much of your unsecured debt you have to pay.
The rule is that your creditors should receive at least what they would have received if you had filed for Chapter 7 bankruptcy. This is meant to ensure debtors do not escape their financial obligations to creditors by filing for Chapter 13 instead of Chapter 7. For example, if your non-exempt property is worth $15,000, your creditors must receive at least that much in your repayment plan. As such, your creditors do not suffer just because you opted to file for Chapter 13 instead of Chapter 7.
What Is Your Income?
Your income is important to these calculations because bankruptcy should not leave you destitute and unable to pay for your basic needs. Therefore, the trustee (the person appointed by the court to be in charge of the bankruptcy estate) will compare your average earnings over the last six months (before filing for bankruptcy) to your state's median income. The result of the comparison determines how long you have to make your repayments, which determines the total repayments you will make at the end of your repayment plan.
If your income is below your state's median income, your repayment plan will only last for three years. If it is above the state's median, your repayment plan will last for five years.
If you are contemplating bankruptcy, the above three questions will help you get a rough idea on how much of your debts you will be required to pay. A consultation with a bankruptcy attorney, such as Todaro David M Co LPA, may help you understand which of your financial obligations are considered priority debts and also help you do the calculations to understand how much you should expect to pay.
