A Chapter 13 bankruptcy is also known as a “wage planer’s” plan. It is ideal for people who can generally afford to make their mortgage and car payments, but may have fallen behind for a variety of reasons. Chapter 13 enables the debtor to keep his or her house and car, while developing a plan to repay debts.
Developing a feasible plan to repay debts is the most important aspect of filing for a Chapter 13 bankruptcy, because this bankruptcy acts as a sort of consolidation loan. The debtor will make regular payments according to the repayment plan to his or her Chapter 13 trustee who then distributes payments to the debtor’s creditors.
A Maryland or Washington DC bankruptcy attorney can help assess your situation and arrive at the optimal repayment plan for your needs.
Budgeting Your Money During Chapter 13 Bankruptcy
In order to successfully emerge from a Chapter 13 bankruptcy, it is vital to develop a budget and meet one’s Chapter 13 plan obligations. Preparing the budget is one of the most difficult tasks of filing for Chapter 13 bankruptcy, but the consequences of failing to adhere to a budget are dire. A failure to maintain regular payments to the debtor’s trustee can result in a dismissal or conversation of the debtor’s Chapter 13 bankruptcy into a Chapter 7 liquidation in Maryland and Washington DC, in which the debtor will lose property.
Some important changes to take into consideration when planning a new budget are:
• The debtor will have to become accustomed to living on a fixed budget for several years. Payments to the trustee can be made via a payroll deduction, so the debtor must become used to living on less money.
• The longest repayment plan that can be permitted under a Chapter 13 bankruptcy is five years. If a debtor’s current monthly income is less than the state median, the repayment is usually set for three years. The court can approve a longer period “for cause.” If the debtor’s monthly income is greater the median, then the plan must be for five years. • The debtor may not take on new debt without consulting his or her Chapter 13 trustee.
The general guideline for judging a debtor’s future income is to average his monthly income over the past six months, assuming no major changes are expected to occur.
A budget should include all expenses and err on the side of being too inclusive. Compiling a historical record of past expenses is a good starting point. If debtor knows the he spends a decent amount of money each week on cigarettes or alcohol, for instance, those amounts need to be included. If he ignores them, he will find himself with less of the essentials each month when the money for food and rent is being diverted to his vices without acknowledging this.
Contact a Maryland or Washington DC bankruptcy lawyer if you are considering filing for Chapter 13 bankruptcy and would like help in developing a plan to regain your financial footing.