If your debt has piled up beyond what you can afford each month but you have enough income to make monthly payments if they were more affordable, then a Chapter 13 bankruptcy might be a good option for you.
Income eligibility for Chapter 13
To qualify for Chapter 13, you must have regular income sufficient to afford the repayment plan you submit to the bankruptcy court. Income can be from a number of sources, including salary from an employer, income from a small business, pension money and Social Security benefits. Your annual income is calculated by looking at your income for the six months prior to filing and equating that to an annual amount.
Part of determining your repayment plan involves comparing your income to the median state income. In San Diego, the median state income ranges from approximately $49,188 for a single person to $77,167 for a family of four.
Expenses and deductions
Expenses are deducted from your income to determine your “disposable” income. Covered expenses include items such as food, housing, clothing, and transportation. You might be able to deduct your actual expenses or a preset maximum amount, depending on your circumstances.
Debt to be included in the repayment plan
Certain debts must be paid in full in a Chapter 13 plan. These include bankruptcy filing and trustee’s fees and priority debts (such as certain taxes, and child support). Secured debt for assets you want to keep, such as a home or a car, will also be calculated in your overall repayment plan.
If you have any disposable income left after deducting expenses from your income, then your disposable income will be used to pay nonpriority, unsecured creditors in proportion to what you can pay.
In some cases, if your income is below the median and you don’t have any nonexempt property, you may not be required to pay anything toward unsecured, nonpriority creditors. (This can be a complicated calculation and is one that you should consider reviewing with your attorney).
The repayment term
Usually, if your income is less than the median, you will have a three-year repayment plan; if your income is more than the median, you will have up to a five-year repayment plan.
Monthly payment amount
Divide your total plan debt by the number of months in your repayment term (36 to 60) to determine your monthly payment amount.
To find out if Chapter 13 or Chapter 7 bankruptcy is a good debt relief option for you, call attorney Kerry Denton at Denton Law Group. Call (619) 458-3739 today to schedule a free consultation.