A chapter 13 is a reorganization bankruptcy where you establish a repayment plan that usually lasts 5 years. Typically, the repayment plan is based on a budget that is created by looking at your net income and then your expenses.
In your Chapter 13 plan, you must pay back your priority debts (usually these are taxes and child support). If you have a home mortgage or a car loan that you’re behind on, then you’ll also have to include the arrearages.
Here at Lifeback Law, we help you with your calculation and see how much you’ll have to pay in your Chapter 13 plan. But, let’s go over an example to give you an idea of what happens in a Chapter 13.
In this example, you make $65,000 a year at your job. You can’t file a Chapter 7 because you make too much money, so you have to file a Chapter 13.
Looking at your debt, you have credit card debt totaling about $25,000 and a recent IRS bill of $2,000. You rent but you have a car loan that you’re behind $1,000, but would like to keep. So, your total debt is $28,000
Looking at your income, you make roughly $5,400 a month but after taxes and deductions you take home $4,000 a month.
Looking at your expenses, including rent, car payment, food, cell phone, internet, electricity, gas for your car, insurance, etc. that adds up to $3,800. So, every month you have $200 in disposable income.
In your Chapter 13 plan, you propose $200/month over the next 60 months, or $12,000. Of that $12,000, your tax debt, car loan arrears, attorney fees and the Chapter 13 trustee, who administers the case, will get paid back. So, roughly $7,700 out of that $12,000 will be paid back in full. That leaves $4,300 which will go towards your credit card debt.
After 5 years and all the payments, you’ve successfully completed your Chapter 13 plan and the remaining credit card debt of roughly $20,700 goes away, with no interest or taxes owed on that amount!
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The above example is a simplified case and if you have home mortgage arrears, or significant tax debt, reach out to Minnesota’s nicest bankruptcy law firm by going to www.lifebacklaw.com. You won’t regret it!
