As an individual consumer, you have two options if you choose to file for bankruptcy. You can—if your income fits the requirements of the Means Test—file for Chapter 7 bankruptcy and have many of your debts discharged in the process. However, if you do not pass the Means Test, your second option is to file for Chapter 13 bankruptcy. In this case, your debts are restructured into a new payment plan that better suits your financial situation. Because the process of Chapter 7 liquidates most nonexempt property and because it can be difficult to pass the Means Test, many debtors opt to file for Chapter 13. If you plan to file for bankruptcy in Pipestone, MN, Behm Law Group, Ltd. can help you navigate the complexities of a Chapter 13 or Chapter 7 case.
Because the conditions of each filer are unique, each Chapter 13 case is different in its own way. These differences depend largely on the types of debts a filer owes. These debts determine how a repayment plan will be structured. Another aspect of the filer’s situation that determines the repayment plan is one’s income.
Income plays a key role in determining the length of time a repayment plan period will last. In Chapter 13 bankruptcy, repayment plans can last three to five years.
Three-Year Plan
Simply put, if your monthly income when you file your bankruptcy petition is lower than the median income of a Minnesota household the same size as yours, your Chapter 13 repayment plan can last either three years or up to five years. While one would most likely choose the three-year time period because one would complete one’s plan, get one’s discharge and exit bankruptcy sooner, one could voluntarily choose a time period longer than three years, but not longer than five years, if one needs a longer time period to pay off tax debts or mortgage delinquency debt. Chapter 13 bankruptcy is designed to keep people with low incomes from continuing the same financial struggles they faced before filing for bankruptcy.
Five-Year Plan
If a three-year plan is based on income lower than the state median, the opposite determines a five-year plan. When your current monthly income is higher than the median income of a similar Minnesota household, your Chapter 13 repayment plan must be five years. The five year commitment period is mandatory. This plan period was designed by the drafters of the bankruptcy code as a compromise regarding the debts of a higher-earning filer and the fair treatment of creditors. The rationale is that higher-earning debtors should have the ability to pay proportionately more to their creditors than lower-earning debtors. Additionally, the rationale is that higher-earning debtors probably incurred higher levels of debt prior to a bankruptcy filing and, therefore, they should be compelled to pay more back to their creditors.
Current Monthly Income
Your current monthly income includes all income from your wages or salary and it also includes all other sources like pensions, annuities, and tax returns. Additionally, it’s based on the income of the most current month, which may vary from your average income over the past 12 months. This means that if your income changes significantly while you are in bankruptcy, your three-year plan could be extended if you experience an income increase or your five-year plan period could possibly be shortened if you experience an income decrease.
For more information about repayment plans and filing for Chapter 13 bankruptcy in Pipestone, MN, contact Behm Law Group, Ltd. today at (507) 387-7200.
