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Elements to a Successful Chapter 13 Repayment Plan

Some debtors may seek bankruptcy protection in order to get a better handle on their finances. Reorganizing debt is their goal, not liquidating debt all together. If this is what you aim to do, Chapter 13 bankruptcy might be the right choice for you.

Chapter 13 bankruptcy is often called a “wage-earner plan” because the debtor has sufficient income to repay creditors over time. Unlike Chapter 7, the debtor doesn’t have to surrender personal property. Instead, you pay off your off your debt using your income. In Chapter 13 bankruptcy, you can usually obtain lower interest rates, lower payments and reduced principal amounts. A bankruptcy judge must approve your payment plan and the bankruptcy trustee assigned to your case will oversee your payments and make sure your creditors get paid.

The plan itself details how much you pay and how long you will make your payments.

Calculating payments

The amount you must pay toward your debt is based on your disposable income, which is the money you have after subtracting allowed expenses and secured debt payments. The exact amount you pay toward each debt depends on the type of debt claim. You must completely pay off all priority debts. Priority debts include back child support and alimony, income taxes, money you owe to your employer, and contributions you made to an employment fund. If you defaulted on a secured debt, such as a mortgage, then you must also make every payment if you want to keep the property. Unsecured debts may be wholly or partially repaid, and in some cases you may not pay any of what you owe. Several factors determine the exact amount you pay, including the value of nonexempt property, how much disposable income you have and the length of your plan.

The duration of your payment plan

Generally, you will make payments under the court-approved plan based on your current monthly income (CMI). Your CMI is based on your average monthly income the six months immediately before you filed for bankruptcy. If your CMI is higher than the median monthly income for your household size in Florida, then your plan will last five years. If your CMI is lower than the average, then you can present a three-year plan that may not allow all of your unsecured creditors to be fully repaid in that amount of time.

Contact a skilled and experienced Jacksonville law firm to assess your situation. We can help you take control of your finances.

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