A Chapter 13 bankruptcy is a long-term commitment and the process can take up to six years in total, including the time spent preparing for filing. Your monthly Chapter 13 Bankruptcy payments take up the majority of this time period. This time frame can be between 3 and 5 years, depending on your individual budget and the total sum of your debt.
Chapter 13 Bankruptcy Payments: The Basics
Filing for a chapter 13 bankruptcy requires you to submit a proposed payment plan. This will detail how much you intend to pay each month towards clearing the debt owed. Your payment plan must account for all priority debts in full such as tax, arrears in mortgage payments, and child support. Unsecured debts, such as credit cards or medical bills also need to be considered and are usually paid in part.
The length of your payment plan depends on your income in the six months prior to filing for Chapter 13 bankruptcy. If it falls below your State’s median income then you have the flexibility to pay back debt over 5 years. In doing so this will lower your monthly payment. The minimum time frame for a Chapter 13 payment plan is 36 months (3 years) and cannot surpass 60 months (5 years).
Working with an attorney will ensure that you have every avenue covered with your payment plan, although you can also file by yourself without legal support. You’ll need to take into account all current and ongoing financial obligations, such as mortgage payments, tax and bills to ensure you have budgeted enough to cover these alongside your monthly payment plan.
Once you have filed for a Chapter 13 bankruptcy, you begin to make payments right away on a monthly basis until the period of your bankruptcy ends. As long as you stick to your payment plan and don’t defer from it, you’ll be cleared of your debts when your payment plan comes to an end and be able to start afresh.
How Chapter 13 Bankruptcy Payments are Calculated
How much your monthly payments will be depends on both the total sum of debt you owe and the length of your payment plan. Priority debts to the State must be paid in full by your payment plan, alongside any backdated car or mortgage payments.
A percentage of unsecured debt should be paid to creditors. As a rule of thumb, they should receive the same amount they would get should you have filed for a chapter 7 bankruptcy. This will entirely depend on any exemptions you have. Chapter 13 bankruptcy exemptions vary from state to state and you can access a full list of items from the government’s website by selecting your specific state.
Chapter 13 Bankruptcy Payments: Who Actually Makes the Payments?
When you file for a Chapter 13 bankruptcy you will be assigned a trustee who takes charge of your monthly payments. Your Trustee will ensure all paper work is present, and assess your plan for approval. Your Chapter 13 bankruptcy payments are usually taken from your wages. Next, your trustee distributes the sum to your creditors. Your trustee will ensure that your payment plan meets the expectations of the creditors, and they will pay the creditors directly. In some instances, you will personally make your mortgage payments. Contact your trustee to ensure you both know exactly who is responsible for your mortgage payments.
Are Your Chapter 13 Bankruptcy Payments Too High?
Your income from the six months prior to your filing will determine your Chapter 13 Bankruptcy payments. Given that the period of your bankruptcy could last up to 5 years, it’s entirely conceivable that your circumstances may change.
If your income has lowered since you originally filed, you may be eligible to apply to modify your payment plan. This will depend on the type of debt you have and the value of your non-exempt property. If your proposed lower rate of payment does not meet the minimum amount that is required to be paid to your creditors. You won’t be able to reduce your Chapter 13 bankruptcy payments.
There are options available if you are experiencing financial hardship during your Chapter 13 bankruptcy including applying for a hardship discharge, a temporary suspension or dismissing your case altogether. Your attorney will be the best source of information on which option may be right for you.
Are Chapter 13 Bankruptcy Payments Tax Deductible?
Over the duration of your Chapter 13 bankruptcy payments you may be eligible for your payments to count towards a tax reduction, depending on the debts that you are paying off. If you are paying towards your mortgage, for instance, then you should claim this in your tax return. As a rule of thumb, anything that you would normally claim as a tax reduction should be treated as usual, as if you weren’t paying it through a Chapter 13 bankruptcy.
How Much are Chapter 13 Bankruptcy Payments?
Chapter 13 bankruptcy payments vary from one individual to another. First calculate how much you can expect to pay. Next you’ll need to determine the total debt you will need to pay off. Start with priority debts, including assets you plan on keeping.
Then figure out how much you’ll need to pay towards unsecured debt. These creditors will be paid a percentage matching the amount they would receive if you had filed for a Chapter 7 bankruptcy. Once you have this figure, calculate how long your payment plan will be. Depending on your monthly income it can be between 3-5 years. Finally, divide it by the number of months.
Do Social Security Payments Stop During Chapter 13 Bankruptcy?
When you file for a chapter 13 bankruptcy, you must declare all income. This figure must include any benefits and social security payments you receive. This income is exempt however, and will not apply towards your payment plan. You will still continue to receive your social security payments as usual. The rules on eligibility for filing for a Chapter 13 bankruptcy vary from state to state however and given that everyone’s situation is unique, the best course of action would be to consult an attorney if you’re unsure.
Can I Estimate My Chapter 13 Bankruptcy Payments?
Here is how to calculate your monthly payment figure.
*Total Sum Of Debt / # of Months you will take to pay it off (36 or 60)
Every individual’s situation is different, so there is no average figure for a monthly payment. While there are online resources to help you estimate your Chapter 13 bankruptcy payments. Your best source of support will be your attorney. He or she will work to ensure your payments are suitable for you and your creditors.
Consequences of Filing Chapter 13 Bankruptcy and Missing Payments
When you file for a chapter 13 bankruptcy, you must adhere to your monthly payment plan. Your monthly payment plan is you top financial priority. If you fall into difficulty, then it is essential to inform the court right away. They can help you to suspend the payments in an emergency situation. For example undergoing medical treatment or the loss of a spouse. Missing a Chapter 13 bankruptcy payment without contacting your trustee can result in the dismissal of your case.
Choosing a Bankruptcy Home Loan Company for Your Mortgage After Bankruptcy
After a Chapter 13 bankruptcy, it might well be in your future plan to obtain a mortgage. This is far from impossible thanks to our knowledgeable team. We specialize in assisting clients with a bankruptcy in their past to find the right mortgage that suits their situation. Contact us today so we can help you open the door to your dream home.
Published (May 4th, 2018)
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