The Fundamentals Of Chapter 13 Payment Determinations
If you're preparing to file a Chapter 13 bankruptcy, the payment plan is an essential component. For those who are new to the process, you may wonder what you can expect from the payment plan determination. The good news is that there's a standard procedure in place to help determine your payment plan, and understanding that procedure can help you to be better prepared for your payment calculation. Here are some of the things that you need to know.
Step 1: Means Testing
The first step in the process for your Chapter 13 payment plan is means testing. This process determines how long your repayment plan will be and is an extensive calculation. You'll have to answer a series of financial questions that will determine your ability to repay and help the court determine how long you'll have to complete that repayment. It's often best to work with a bankruptcy lawyer to complete this so that you can be sure that everything is comprehensive and accurate.
Step 2: Disposable Income
Your disposable income plays an important role in your bankruptcy payment arrangement, too. You'll have to establish your household income, including all sources, and then subtract your actual monthly expenses. What's left is considered to be excess funds, which you'll have to define in your payment arrangement. This figure is a part of determining your payment plan because your excess funds are part of what your payment amount will be based on, so it's important that you calculate it correctly.
Step 3: Liquidation Calculation
The next stage in your Chapter 13 payment plan is the liquidation calculation. This process is used to evaluate your existing unsecured debts and the assets you have available to liquidate. This stage determines how much your creditors would receive if you were to liquidate your assets and take a Chapter 7 approach. This is important to determine whether Chapter 7 or Chapter 13 is the right solution.
Step 4: Payment Calculation
Once the other tests are complete, the final step is to calculate your actual required payment. This starts with determining what needs to be paid. In most cases, debts like taxes and child support must be paid, and your mortgage, car loans, and other secured debts should be paid in full as well. Unsecured debts and bankruptcy trustee costs are also incorporated. Then, you calculate what the payment would be over the duration of the period determined in the first step.
The court will evaluate each of these calculations and determine the payment for your plan accordingly. Your bankruptcy lawyer can help you with the calculations and the final payment determination.
Contact a bankruptcy attorney for more information.