Are you under financial distress and considering declaring bankruptcy? Bankruptcies have long been the answer to debtors looking to have their debts discharged, so find out what your options are in getting the best possible results when you file for bankruptcy.
There are different types of bankruptcy in the bankruptcy code. For personal bankruptcy, it’s generally a choice between Chapter 7 (liquidation) and Chapter 13 (reorganization). If you want the bankruptcy process that will allow you to hold on to as many of your assets as possible, the bankruptcy chapter for you is 13.
If you’re filing for bankruptcy under Chapter 13, understand that you have to propose a repayment plan. To continue with bankruptcy proceedings, this reorganization plan has to be approved by the bankruptcy court. For the payment plan to meet with the court’s approval, it must manifest your best effort to pay your debts. This means that you’ll be using all of your disposable income to pay your non-priority unsecured creditors.
Disposable income pertains to your leftover funds after you’ve covered all your basic living expenses and made your monthly payments on more important debts. These necessary installments include priority debts (e.g. taxes and child support) payments and secured debts (e.g. car loan and mortgage) payments. A secured debt is one that has an asset attached to it. In contrast, non-priority unsecured debts usually pertain to such obligations as credit card debt and medical bills.
Non-Priority Unsecured Debt Payments
How do you calculate your monthly payment on these debts? The main determination falls on whether your income is below or above your state’s median income. Essentially, it involves averaging your monthly income for the six months prior to your Chapter 13 bankruptcy filing and then comparing it with the established state median for households the same size as yours.
If your income doesn’t meet the state median, your best effort probably wouldn’t cover much of the non-priority unsecured debts. This could result in you completing your repayment plan and getting your bankruptcy discharge in just three years instead of the maximum five years. The plan will be based on your household budget and not on your monthly disposable income.
If your income surpasses the state median, you will have to figure out what your disposable income is by subtracting your living expenses as well as your priority and secured debt payments from your regular income. Living expenses can be calculated based on your specific expenses, if not on local or national standards. After you’ve made the deductions, what’s left is your disposable income. With it, you can spend the next five years paying off unsecured creditors in the manner that the bankruptcy court decides.
Debtors with Substantial Assets
There are bankrupt debtors who might not have much of an income but do own valuable assets. It’s possible that bankruptcy isn’t the right debt relief solution for them. In this case, they should look into alternative ways to get out of debt. If you have substantial assets, a bankruptcy judge may express concern that each creditor would receive less from your Chapter 13 payment plan than they would if you liquidate your assets in Chapter 7 since a filer can keep non-exempt assets in a Chapter 13 bankruptcy case, but not in a Chapter 7 filing.
This is why the court will study the value of your non-exempt property along with your disposable income and the total amount of your priority debt. You’ll have to pay the greater amount to your creditors to ensure that you don’t end up with a windfall by filing bankruptcy under Chapter 13 rather than filing Chapter 7.
Considering Filing Chapter 13 Bankruptcy? Contact a Washington Bankruptcy Attorney Today!
If you plan to pay your creditors to hold on to your assets, make sure that you come up with an acceptable reorganization plan by consulting a bankruptcy lawyer. Bankruptcy lawyers can help their clients in Chapter 13 bankruptcy cases create payment plans that will meet with the approval of bankruptcy courts.
It’s best to hire the services of a lawyer specializing in bankruptcy law in order to craft a suitable plan to make payments to debt collectors. You can definitely use the legal advice and assistance throughout the entire experience, from filling out bankruptcy forms to achieving your bankruptcy discharge.
If you need legal help in a bankruptcy case, call us at Northwest Debt Relief Law firm and arrange a free legal consultation with one of our experienced Washington bankruptcy attorneys.