CHAPTER 13 PAYMENT PLAN
When is Chapter 13 a good solution:
CHAPTER 13 STOPS FORECLOSURE/REPOSSESSION OF FINANCED PROPERTY
If you are behind on mortgage or car payments, haven’t been able to negotiate a loan modification and want to keep the property, a Chapter 13 might be a good solution.
CHAPTER 13 STOPS BANK LEVY/WAGE GARNISHMENTS ON NON-DISCHARGEABLE DEBT
Individuals owing significant non-dischargeable income tax debt who have been unsuccessful in negotiating with the tax authorities to establish a reasonable repayment plan or through an “Offer and Compromise” Chapter 13 can force tax authorities to accept payment plan as dictated by the Chapter 13 Plan.
CHAPTER 13 PREVENTS LOSS OF NON-EXEMPT ASSETS
Individuals with non exempt property (property that cannot fit into exemptions provided by law) can keep the non exempt property as long as they repay the portion of the non exempt value .
HOW DOES CHAPTER 13 PAYMENT PLAN WORK?
Debtors propose a Payment Plan and make monthly payments to the Trustee who distributes payments to creditors. First payment is due 30 days after the case is filed and then each month thereafter for a period of either 3 or 5 years. The length of the plan depends on household income but cannot exceed 5 years.
CHAPTER 13 TRUSTEE(S) COVERING THE SOUTHERN DISTRICT OF CALIFORNIA
- Thomas H. Billingslea, Jr., 401 W A Street, Suite 1680, San Diego, CA 92101 E-mail: firstname.lastname@example.org, Phone: (619) 233-7525
- David L. Skelton 525 B. Street, Suite 1430 San Diego, CA 92101 E-mail: email@example.com, Phone: (619) 338-4006
With the Chapter 13 Plan Payments, the debtors can catch up on past due amounts owed on secured debt obligations like mortgages, car loans. This can stop foreclosure and repossession.
Calculating Chapter 13 Payment Plan – How much do I pay?
Sometimes the challenge here is whether the debtor’s budget (household income minus expenses) has sufficient disposable income to afford a Payment Plan. The longer a distressed homeowner waits and gets behind on mortgage payments, the larger the past due. The bigger the past due amount the bigger the Plan Payment if the goal is to retain the property. Since a Payment Plan cannot exceed a period of five years the overdue amount needs to fit into 60 payments.
A lot of discussion can go into figuring out the Payment Plan and whether the household’s budget is adequate. Besides past due amounts on secured debts, the Payment Plan may be increased by unsecured priority debt, like child support and certain taxes.
The household’s disposable income and the amount of the unsecured debts also is a factor. Disposable income does not necessarily mean what a debtor has left over each month after paying bills. Bankruptcy laws provide specific guidelines about what expenses are reasonable and necessary. Some of the numbers used, like housing and utility costs are published by the Census Bureau.
Similar to the previously discussed Chapter 7 Means Test, we start calculation by figuring out the average gross income for the previous six calendar months. From this result we deduct all the “allowable expenses”.
Typically, an Attorney will need information and time to run the calculations before discussing the results. Household size, basic living expenses, debts, and assets are factors here. Disposable Income must be paid to the unsecured creditors (which could include credit card debt, medical bills, and lien stripped second mortgages).
The Plan will also include payment of Secured Debt for any property that debtor wishes to retain (For example: past due and current payments on vehicles debtor wants to keep or past due payments on mortgages). Regular mortgage payments are made directly to the lender while Plan Payments also pay Unsecured Priority Debt, like income taxes. The larger the overdue income tax obligations or child support, the larger the plan payment.
Chapter 13 can help make the home affordable by converting second and third mortgages into unsecured debt. These creditors are then paid same percentage as other unsecured creditors. A lien strip can only be done on a primary residence. The market value of the residence must be below the total amount owed on the first mortgage.