Considering Chapter 13

[seanf12]

I live in MA and I am considering filing for Chapter 13. I understand that with Chapter 13 you submit a payment plan to the courts. Does anyone know how they determine what this payment will be? Is it typically a break-even situation every month, where they take your income, minus living expenses, and whatever is left goes towards the plan (thus break even at the end of the month)?

Also, what happens if my income increases after paying into the plan (such as a modest raise or my wife goes back to work part-time)...does that additional income automatically go towards the plan payment (and thus I never really see the additional income)?

WHat about state and federal tax refunds..do I lose those every year until I complete the plan and my remaining debts discharged?

Sorry for all of the questions, but this is all very new for me. Thanks in advance!

[HHM]

There are 2 factors that determine your payment...

1. The amount of your disposable income, this amount is the difference between your actual income and your actual expenses (so, yes, the chapter 13 trustee takes everything you have left over). This aspect sets the "maximum" amount to be paid to the plan.

2. Liquidation value of your estate. Under this condition, creditors must "at least" get as much as they would over the life of your chapter 13 plan as they would if you filed chapter 7 and the trustee liquidated non-exempt assets. This aspect sets the "minimum amount to be paid to the plan.

Whether your payment will increase as a result of a raise or additional income depends on your district and trustee. Some trustees do audit your tax returns each year during the plan to see if there has been an increase (but most don't). From what I have heard, most trustees that look for income increases during the plan look for 10% or more of an increases before requesting an upward adjustment of the monthly payment.

[seanf12]

Thanks

We send our son to a catholic school, meaning we pay about $340 a month for tuition. Will they require us to stop paying that and move him to a public school (is tuitition an allowable expense)?

[lrprn]

We send our son to a catholic school, meaning we pay about $340 a month for tuition. Will they require us to stop paying that and move him to a public school (is tuitition an allowable expense)?

It depends on the customs of the Ch 13 trustee in the local court where you file. Unfortunately although there's one national bankruptcy law, there's a great deal of variability between how different Ch 13 trustees interpret that law.

You should not try to file Ch 13 on your own - you need to find a lawyer and retain him/her to help you. There are way too many gray areas and potential trouble spots that could cost you dearly to risk trying to file a Ch 13 case on your own.

Start by setting up free or low cost initial interviews with 3-4 bankruptcy lawyers in your area. You'll learn a great deal about what's going to be possible in your situation.

Also here's some excellent online Ch 13 resources so you can learn as much about Ch 13 as you can before you meet with the lawyers -

http://moranlaw.net/13workings.htm#Chapter%2013%20practice

http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter13.html

http://www.bankruptcyvisuals.com/viewcharts.html

Keep posting questions here - we'll help you as much as we can.

[MajorMike]

Can you keep your stuff in one thread? I think you started another one similar to this~~
Anyway, some districts may see Catholic school as a NON-NECESSITY or a luxury and others may not. This is why you need to go see 2-3 attorneys RIGHT NOW and all your questions will be answered. Also, search this forum as many of your answers will come up that way as well. I do that every day ! LOL

I live in MA and I am considering filing for Chapter 13. I understand that with Chapter 13 you submit a payment plan to the courts. Does anyone know how they determine what this payment will be? Is it typically a break-even situation every month, where they take your income, minus living expenses, and whatever is left goes towards the plan (thus break even at the end of the month)?

Also, what happens if my income increases after paying into the plan (such as a modest raise or my wife goes back to work part-time)...does that additional income automatically go towards the plan payment (and thus I never really see the additional income)?

WHat about state and federal tax refunds..do I lose those every year until I complete the plan and my remaining debts discharged?

Sorry for all of the questions, but this is all very new for me. Thanks in advance!

[isitreal]

Not necessarily ALL of your disposable income will be used if you fall into the few that can pay back 100%. If, for instance, you can pay all of your debts within the 5 year (depending on your income level - 3 year) period with less than all of your disposable income you only spend that much.

Example: (These are made-up even numbers for simplicity).

Your disposable income is $1,000.00 per month.
You owe creditors $30k
Trustee charges 5% interest.
You would have to pay in the neighborhood of (let's just call it) $33,000.
$33,000 divided by 60 months is only $550.

In this scenario, you would have $450 of extra income after you give the trustee $550 each month to pay off your debts

[HHM]

Not necessarily ALL of your disposable income will be used if you fall into the few that can pay back 100%. If, for instance, you can pay all of your debts within the 5 year (depending on your income level - 3 year) period with less than all of your disposable income you only spend that much.

Example: (These are made-up even numbers for simplicity).

Your disposable income is $1,000.00 per month.
You owe creditors $30k
Trustee charges 5% interest.
You would have to pay in the neighborhood of (let's just call it) $33,000.
$33,000 divided by 60 months is only $550.

In this scenario, you would have $450 of extra income after you give the trustee $550 each month to pay off your debts

That may be a district by district thing, but most 13's that I have seen, the debtor pays ALL their disposible income in to the plan, (after all, that is what the BK says the debtor is to do), what happens is, the debtor gets out of the plan sooner, they don't get to stretch it out.

So what would actually happen in your example, is the debtor would still pay $1000 per month, but would finish the plan in 33 months, not 60.

[seanf12]

So essentially if my work got a part-time job after we filed, and the trustee ended up asking for the money (which I am still confused as to whether or not that will happen...I got two different answers from two different attorneys), we would be out of Chap 13 sooner?

[HHM]

So essentially if my work got a part-time job after we filed, and the trustee ended up asking for the money (which I am still confused as to whether or not that will happen...I got two different answers from two different attorneys), we would be out of Chap 13 sooner?

Unfortunately, it really depends on the customs of the district and the trustee (and those customs depend on state exemption law).

Tax refunds are easy for trustees to get, all they have to do is ask for your tax returns, see if you are getting a refund and then compel you to turn it over. The tax refund is easy money from the trustees perspective. Increases in income are not scrutinized as closely. Assuming the trustee even looks at your tax return, if they see more than a 10% increase in annual income, they may ask for a modification of the payment. But to modify the payment, they have to file a motion to amend the plan, etc etc...its more of a pain in the butt, so most trustees don't worry about increases in income over the life of the plan. The other reason, is that incremental increases in income don't add that much more money to the trustee, lets assume 12 months into a 60 month plan, your disposable income went up by 100$ per month, that would only put $240-$480 in the the trustees pocket OVER 4 years...hardly worth the effort. Whereas a $2,500 tax refund puts $125 to $250 in the trustees pocket instantly for less than an hour of work.

Strictly speaking, by the letter of the law, if you had an increase in income but no increase in expenses, you are required to turn over that disposable income. However, because of the administrative hassles with amending a confirmed plan, increases in income are rarely audited by the trustee.

[seanf12]

Thanks for the response. All attorney's I've spoken with in my district have told me that we should have no problem hanging on to our tax refunds, due to the federal exemption (since we have no equity in our house we can use the homestead exemption to cover it)