If you are struggling to pay your bills and your household income is higher than the applicable median income, filing a Chapter 13 case may the answer to your problems. In a Chapter 13 bankruptcy, you will submit a repayment plan that sets forth how you intend to repay your creditors, either wholly or partially. The biggest concern for most individuals is how much they will be required to pay under their plan. To calculate this amount, numerous steps must be taken.
As your bankruptcy attorney, we will apply the means test to your individual finances to determine whether your income is higher or lower than the median income for your household size. The median income for each state is set by the U.S. Census Department. If your income falls below the applicable median income, the term of your Chapter 13 plan will be 36 months. Your “disposable income” or the sum that is remaining after you pay your “reasonable and necessary expenses,” will determine the amount of your monthly plan payment.
If your household income is greater than the median income, we will apply the Internal Revenue Service (IRS) standards in calculating the amount of your plan payments. The IRS standards permit you to apply deductions for specific expenses such as your rent or mortgage payment and other necessary living expenses such as clothing, food, medical costs and other similar expenses. A seasoned Chapter 13 attorney can assist you in taking full advantage of all the applicable deductions. Once all of the deductions are applied to your gross monthly income, the remaining balance is your projected disposable income that will be used to fund your repayment plan.
The Chapter 13 procedure can be complicated, but we can walk you through the process step by step. If you are interested in learning more about how a bankruptcy filing will impact your debt, contact Faro Crowder, PA to schedule an appointment.
If your company is considering filing bankruptcy and you deal with several vendors, it is important to understand what is meant by the term “preferential transfer.” A preferential transfer is a payment (in money, goods or other) that is made to a creditor within the 90 days preceding the filing of the bankruptcy petition that results in that creditor receiving more than it otherwise should have. The result is that the creditor was “preferred” over other similarly-situated creditors.
What happens if a preference occurs?
If a preferential payment is made, the trustee has the ability to recover the money or goods in order to administer them as part of your bankruptcy estate for the benefit of all the creditors. This can be accomplished by the trustee asking the creditor to return the payment or, if necessary, a lawsuit called a “preference action” can be filed within the bankruptcy case.
What about payments to secured creditors?
A question can arise for secured creditors because foreclosing on collateral pledged to secure a loan does not provide the creditor more than it would have received if the collateral had been liquidated in the bankruptcy case. Naturally, there are some exceptions to this rule. If a secured creditor’s claim is greater than the value of the collateral, the amount of the secured claim is typically limited to the value of the collateral as of the petition date. Any remaining deficiency balance becomes an unsecured claim. Thus, some bankruptcy judges have ruled that any payment made to a secured creditor within the 90-day period is assumed to have been made for the unsecured part of the lender’s claim and therefore potentially subject to a preference action.
Secured creditor defenses
If you are a secured creditor and you are facing a preference action, it is important to understand you may have valid defenses to the preference action. The primary defense used by secured creditors is the “ordinary course of business” defense, which means the payment was made during the ordinary course of business between the debtor and creditor so it is not extra-ordinary or preferential.
To learn more about preferential transfers, contact us for a free consultation.