Most individuals considering filing for bankruptcy have two main options: filing for Chapter 7 bankruptcy or filing for Chapter 13 bankruptcy. In the case of Chapter 7, a filer has qualified for this type of bankruptcy after passing the Means Test, determining that their debts and financial obligations outweigh their disposable income and estate value. The process of Chapter 7 liquidates assets, uses asset value to repay creditors, and discharges debts. However, even if a high income prevents qualification for Chapter 7, accumulated debts can cripple finances. If you cannot file for Chapter 7, you may choose debt reorganization with Chapter 13 bankruptcy. For any type of petition, Behm Law Group, Ltd. can help you through the process of filing for bankruptcy in Mankato, MN.
Chapter 13 bankruptcy is designed to take your monthly reasonable and necessary living expenses and weigh them against your monthly “net” take home income and the value of your assets. This type of bankruptcy reorganizes your debt repayment, effectively restructuring the process by which the creditors are paid to the best possible advantage to you. Generally, unsecured creditors (credit card debts, medical debts, etc.) and priority creditors (tax debts, child support arrearages, etc.), receive no interest, no late fees, or any other default fees through the Chapter 13 process.
Because Chapter 13 cases vary so widely, it can be difficult for prospective bankruptcy candidates to apply the basic description of debt reorganization onto their own situation. Though the provisions of a Chapter 13 repayment plan may change from case to case, there are some constants across the board.
Amount to Pay
With most debts, a Chapter 13 repayment plan doesn’t change the amount you have to pay each particular creditor. Rather, you make one monthly payment to a Chapter 13 trustee and the trustee divides that payment among your creditors pursuant to the provisions of your Chapter 13 plan. The debts you will have to pay in full can include:
- Priority debts, such as alimony, child support, tax debts, and wages owed to employees.
- Mortgage delinquencies, if you plan on keeping your home throughout the bankruptcy process.
Other debts, however, may only be partially paid. This portion can be between 0% to 100% of what you originally owed the creditors. What you will have to pay is determined by your nonexempt estate value, your disposable income available to repay debt, and the period of your repayment plan.
Repayment Plan Length
Simply put, your income level directly determines the period of your repayment plan. There are two basic options when it comes to balancing your income with your debt repayment.
- If your monthly income is higher than the monthly median income in Minnesota for a household of similar size to your own, you will be required to file a five-year repayment plan.
- If your monthly income is lower than the monthly median income in Minnesota for a household of a similar size to your own, you may opt for either a three-year plan or a five-year plan.
Chapter 13 bankruptcy may seem more complicated than Chapter 7 bankruptcy, but for many, it’s exactly the right choice for financial recovery. For more information about filing for bankruptcy in Mankato, MN, contact Behm Law Group, Ltd. at (507) 387-7200.