If you are considering filing a Chapter 13 bankruptcy, you will need to submit a plan of repayment for the court to approve. The Chapter 13 plan outlines how your creditors will be paid over a period of three to five years. Once the court has confirmed or approved your plan, you will make monthly payments to the trustee who will distribute the funds to your creditors pursuant to the plan terms.
Most clients want to know how much their monthly payment will be in a Chapter 13. The answer depends on the facts of your specific case. All of your creditors are provided notice of your bankruptcy and given a deadline to file a Proof of Claim. Each claim sets forth the amount the creditor believes is due. All of the Proof of Claims are reviewed by the trustee to determine the total amount to be paid under your plan (which is called the “base” of your plan) and the percentage to be paid to each creditor. Each creditor is paid according to the type of their debt – priority, secured or unsecured. Consider the following example:
If the base of your plan is $3600 over a 36 month period, your monthly payment is $100. However, if the amount that you must pay to cover all of the creditor’s claims exceeds the base amount, the court will consider your plan “infeasible.” This means that you will not be able to pay all of your debts according to the terms of your plan.
What can you do if your plan is infeasible? One of the most common solutions is to amend your plan to make it feasible. Below are a few ways you can amend your plan to make it affordable:
- Make a larger monthly payment
- Lengthen the term of your plan (if it is less than 5 years)
- Make a lump sum payment
- Alter the percentage to be paid to unsecured creditors
- Set forth a gradual increase in your monthly payments as your plan progresses
If you have questions about filing for bankruptcy protection, we have the answers. Call us today to schedule your initial consultation. Our office is located in Melbourne, but we proudly serve individuals and businesses across the State of Florida.