When filing a Chapter 13 Bankruptcy, many often wonder how payments are calculated and to what extent their financial means will be considered in the process of determining that payment. Fundamentally, payments are calculated according to two principles: the best interests test, (also referred to as the BIT) and the best efforts test.
The best interests test evaluates whether the best interests of the creditors are met by comparing how much the creditors would receive in a Chapter 13 filing against how much they would receive if a Chapter 7 were filed instead. If the creditors would be paid at least as much in the proposed Chapter 13 plan as they would receive in a Chapter 7 filing, then the best interests test is met. Conversely, the best efforts test evaluates the financial means of the person filing to determine the amount of money that would theoretically be a reasonable and manageable payment.
The best efforts test primarily looks at two things: the income of the person who is filing, and secondly, their expenses. When constructing the chapter 13 plan, your attorney will work with you to create a budget that provides sufficient room to pay all of your household bills and ensure that all of your needs are met during the course of the chapter 13 plan. They will also work with you to create a monthly income projection that forecasts what your income will be during the course of the Chapter 13 plan.
You might wonder, what income is considered when making this forecast? Is this limited to wages that are earned during the time that I am in my Chapter 13 plan, or does this also include income from other sources like social security or veteran’s benefits? It is important to note here that when we are discussing income for the purposes of a Chapter 13 plan, we are not necessarily including income from all potential sources. There are a number of income streams that are protected in bankruptcy and which can be omitted when considering the Best Efforts test.
Firstly, social security income may be omitted from the Best Efforts test calculation. Related to this, SSDI and SSI may also be omitted, as can income received from the VA, such as VA retirement or VA disability. Also excluded from this calculation are most forms of public benefits, such as MFIP or general assistance. While this is a non-exhaustive list of the sources that may be omitted from consideration when calculating a Chapter 13 plan payment, it serves to illustrate the breadth of the various income sources that can be excluded from the Best Efforts test at the discretion of the party filing.
One critical thing to note here is that these protected income sources MAY be omitted, if the person filing bankruptcy chooses to omit them. As this naturally implies, these sources can also be included in calculating the payment being made for a Chapter 13 plan if it would benefit the person who is filing the chapter 13 bankruptcy.
This distinction is relevant in situations where you might be seeking to show the trustee that there are sufficient funds available to meet the needs of a Chapter 13 plan, such as in an instance where you are catching up on a payment for a mortgage or a car loan through the plan. In such a circumstance, it could potentially be to your benefit to include some of the income that you receive from an otherwise protected source to show the trustee and the court that there will be sufficient income available to make all of the necessary payments. In speaking with your attorney, they will work with you to ensure that the income you receive from these protected sources is preserved, while also tailoring your plan to ensure its success.
CALL NOW FOR A FREE STRATEGY SESSION FROM AN MN BANKRUPTCY LAWYER AT LIFEBACK LAW FIRM
Fundamentally, bankruptcy exists to offer you relief from overwhelming debts and it is structured to do this without compromising the protected status afforded to income received from many highly important sources such as the Social Security Administration or the VA. Our firm is highly experienced in analyzing and explaining the ways in which your income can be preserved and protected throughout the bankruptcy process, and we be more than happy to meet with you to explain how these protections can assist you. When the time is right, or when you are ready, please don’t hesitate to reach out to Minnesota’s most kind and helpful bankruptcy law firm by going now to www.lifebacklaw.com.
