When people in New Hampshire think of bankruptcy, their first thought may be of Chapter 7 bankruptcy, in which the debtor’s assets are collected and sold to pay back creditors. However, another bankruptcy option available to some is Chapter 13 bankruptcy. In this type of bankruptcy, the debtor will execute a three to five-year repayment plan that is approved by their creditors and the court. The plan will have the debtor pay monthly installments to a trustee, who will use those funds to pay back the debtor’s creditors.
It is important, then, for Chapter 13 debtors to understand how much they should be paying each month under their repayment plan. Determining these payments goes beyond simply adding up the debtor’s past-due bills and then dividing the total by 60 months, for example. Instead, the debtor’s income and expenses will be considered, as will the types of debts and the value of the debtor’s assets.
To be approved for Chapter 13 bankruptcy, debtors must have a steady and reliable source of income, including not just working wages, but also spousal support, pensions, Social Security benefits and even unemployment benefits. Bonuses and raises are considered, as are reductions in pay.
The debtor’s actual monthly expenses are also considered. However, under federal law, only certain types of expenses and certain amounts of expenses are counted. The debtor’s reasonable and necessary expenses are deducted from the debtor’s income, resulting in the debtor’s “disposable income.” Sometimes, this will be the amount of the debtor’s monthly payments, although sometimes the calculation differs for those with specific types of debts or who have non-exempt assets.
As this shows, calculating a Chapter 13 repayment plan is not as simple as it may seem on its face. The many sources of income and types and amounts of exempt assets, non-exempt assets and expenses all factor into the final amount.
