A chapter 13 bankruptcy plan, also known as a salary earner’s plan, allows a person to repay their debts. People with regular income can design a plan in order to repay some or all of their debts. Debtors put forth a debt repayment plan consisting of installments. The plan spans over 3-5 years.
The plan lasts for three years if the debtor’s monthly income is less than the listed state median. However, this duration can change if the court allows and approves a duration of more than three years.
Similarly, if the debtor’s monthly income happens to be greater than the listed state median, the plan will go up to five years. It is pertinent to mention that a plan can not extend for more than five years regardless of the case.
The advantages associated with Chapter 13
There are several advantages that Chapter 13 brings in. The most major one is the fact that it provides individuals with an opportunity to save their houses from foreclosure. When an individual files under chapter 13, they can prevent a foreclosure and take their time paying their mortgage. They must still fulfill the due payments on time during this plan.
Another significant advantage is that this plan gives individuals the liberty to reschedule their debts, aside from their mortgage. Moreover, they can have them extended throughout this plan. Doing so may result in reduced payments.
Chapter 13 also comes with exclusive provisions that protect third parties legally answerable to debtors about consumer debts. The provision may also protect the co-signers.
Last but not least, the chapter 13 plan, in a way, is similar to a consolidation loan. Under this, a trustee receives planned payments by said individual. The trustee is then responsible for paying the creditors. To sum up, the concerned individual will be free from any direct contact when they are under chapter 13 plans.
When it comes to secured debts, you must keep the current on the mortgage if you plan on keeping your home. If it is a car, then keep the current on car loan payments. You can pay it through the plan or may choose to pay to the lender directly in time.
What will be my monthly payment?
The answer to this question can never be the same for everybody. There are numerous factors that determine the amount an individual will have to pay every month.
First and foremost, the first factor that determines the number of monthly payments is disposable income or DI. Disposable income refers to the money left after you have met all your necessary monthly expenses. We can determine your disposable income through a method that we call Mean-Testing. This refers to a critical analysis of your income over the past six months.
The second factor is how much money the plan requires you to pay. To put it in perspective, there are certain debts that individuals have to pay in full due to legal issues. This includes outstanding payments on mortgage, alimony, child or domestic support and taxes.
The third factor is where we carry out a cash flow analysis. The analysis helps the bankruptcy code set a minimum amount as per the assets’ value that an individual must pay. In bankruptcy, it is the law that safeguards your assets using an exemptions policy.
If the assets’ value goes beyond its exemption, the bankruptcy code can ask you to pay the extra amount.
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