CHAPTER 13 BANKRTUPTCY – PART II: How is the monthly payment calculated?
Yesterday, I spoke about a gentleman who found great relief in a Chapter 13 bankruptcy, but I did not provide much insight as to how a chapter 13 bankruptcy payment is calculated. I would like to take this time to explain. In Chapter 13, there is no strict liquidation – that is, you are not forced to sell property. Instead, to provide some sort of compensation to creditors you must create and carry out a payment plan. This payment plan will last anywhere from three to five years depending on your income.
Now, this payment plan will not necessarily have a strict requirement to pay back a certain percentage to all of your creditors. Instead, the payment amount will be mostly influenced by what you are able to pay to creditors. To determine what you are able to pay on a monthly basis we submit a budget to the court at the very beginning of your case. This budget outlines your net income (or your take-home pay) and all of your reasonable and necessary expenses. Your monthly payment amount to the court is the difference between your net income and your expenses.
We create a budget for each expense such as the mortgage/rent, utilities, food, clothing, medical, recreation, insurance, transportation, etc. We even try and account for the normal expenses that come up, but not on a monthly basis, i.e. oil changes and tire repairs. For instance, we might take $300 a month for your transportation budget even though you only spend $150 a month on gas. This would allow you to save $150 every month for when the oil change, tire replacement and maintenance expenses come up.
While some people have to tighten their budget to fit within what a judge might consider to be reasonable means, many people (like yesterday’s illustration) find that the chapter 13 budget allows them to live a better quality of life because they had sacrificed so much trying to satisfy the rigorous demands of their creditors.
We offer a free consultation, where we can discuss how to help reduce your debt. Call experienced Arizona Bankruptcy Attorney, Benjamin Skinner at JacksonWhite today! (480) 648-8975.