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100% Chapter 13 on 60K credit cards and 54K student loans

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  • 100% Chapter 13 on 60K credit cards and 54K student loans

    We are barely keeping our head above the water but long term this isn't sustainable, so I am considering Ch13 and would seek 100% plan. Am i correct that one "benefit" of doing Chapter 13 is that we will get the 60K in credit cards paid off in 5 years, ultimately saving like 25k-30K in interest over that 5 year period. Lack of interest and fees is what will help us "dig ourselves" out of this hole we are in.
    Now, here is the second part: if I include the student loan debt into the plan, would the same formula apply? Divide the 54K balance of student loans in to 60 months and pay that along with the payment of the credit card portion?

    So right now I'm paying MINIMUM payments of around $1300 a month, but $60,000 over 60 months is $1000 a month.
    We are paying around $650 a month in student loan payments, but $54,000 over 60 months is $900 a month. So essentially the overall payments stay the same, but the $300 I "save" monthly towards credit cards go towards the student loans.... so I am paying $1900 to the "plan"
    At the end of the 5 years... would the students loans actually be paid in full or am i missing something here? I think i read that student loan interest still accrues, so perhaps that would still be there after, but that would be manageable.
    Just seems "too easy" to end up 5 years from now with credit card debt AND student loan debt paid off 100% (minus the credit card interest)

    Based on looking into Ch 13 a few months ago, I believe we calculated my MDI to be around $2800. So we would potentially still have $800 a month "leftover".
    Would the trustee want to take some of the $800 to maybe put towards "interest" on the credit card debt?

  • #2
    Other than including the Trustee fee (just use 10% for an estimate), Other than that, you could propose a 100% plan and be done in 5 years. Hopefully your District does not require "all" debt to be paid through the plan which could make it exorbitant to pay a large mortgage. For example, I was paying over $7,000/month to the Trustee in my Chapter 13 and the Trustee earned $700/month to write about 5 checks. (Think about that... $7K x 60 - $42,000 to write some chekcs.)

    When you propose a 100% plan you only pay what is necessary to get to 100% over the 5 year life of the plan. Some Trustees, and even debtor attorneys, may try to make you pay 100% of DMI (disposable monthly income) by selling an "early payoff" if you paid more. This is not required and it is not the best strategy.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog

    I am not an attorney. Any advice provided is not legal advice.


    • #3
      Thanks, I don't think here in New Orleans that is the case to pay ALL debt via the plan. I've talked to 3 different BK attys, and seems like all gave varying answers. One, who is a TV advertisign type of BK atty was hell bent on getting our expenses super high and the payback % super low, but that involved dumping into 401K, buying a new car, etc.... overall leaving very little wiggle room to live.
      Another one of the attorneys suggested since my DMI was greater than the 1/60th of the debt payment, to just go for 100%, save on interest, and still have money to "live". I got varying answers on if students loans went into forbearance during the 5 years, or if they were paid as usual, or if they were made part of the plan.
      The wife may be going back to school soon, thus her loans would go into deferment based on being enrolled toward a degree, so maybe they are best left out of the plan.... but then in 2 years they will come back due, plus any new ones. Also, having them in deferment/forbearance (not sure the difference) would likely increase my DMI to a point where I was advised the trustee would want to take "additional" money to payback some of the saved interest to the creditor.


      • #4
        Despite student loans going to a forbearance period, a Chapter 13 can still pay student loan debt since it's just a general unsecured creditor (lower priority than most other debt). If you're in a 100% plan, that 100% plan can include student loan debt at the normal payment rate. You will not be able to get past the interest on the student loan debt specifically because it's non-dischargeable. In fact, you may be better off paying 100% of the otherwise-dischargeable unsecured debt in the plan, and paying the student loan "outside" the plan.

        That's something to ask at your next consultation.
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog

        I am not an attorney. Any advice provided is not legal advice.


        • #5
          I'm in a different state than you but we just filed and had our 341 meeting. We are in a 100 percent plan and had the option of including our student loans or not. We did not because chapter 13 puts your federal loans into deferment for the entire time your case is open, so we can pay off our other debt and make payments if we can to the student loans, but aren't required to. This is only true for federal loans, not private I think.

          If your district is like mine, you would add up all of your unsecured debt and divide by 60 to determine your payment. If you wanted to include student loans just add them to the total and divide that by 60. You would have to pay interest on loans but not other debt.

          DMI did not matter for us because we were paying 100 percent.


          • #6
            Also keep in mind that once you file for BK, your creditors must file a "proof of claim" in order to get disbursements from your Ch 13 payment to the trustee. You may get lucky and not all your creditors file POCs by the "bar" (due) date. If that happens, then you will have less than 60K of unsecured debt to pay and maybe go at 100% for less than 60 months, or maybe a lower payment for 60 months. You will not know until that bar date passes and your plan is confirmed, which is several months after you file your BK petition.

            You will pay no interest on your unsecured debt, except for any interest accrued up to the date you filed BK, as reported by your creditors on the POCs.

            I can't speak to student loan debt. Mine was paid off many years ago..
            Filed Ch 13 Fall 2013, 60 month plan


            • #7
              My understanding on student loans from talking to the lender the interest still accrues while in bankruptcy. So my guess is even if you pay 100% of the total during your chapter 13, once you are done you will have some amount to still pay, but most likely significantly less then when you started. I have two lenders I deal with one for me and one for my wife. My lender said they have to apply all bankruptcy payment to the principal. But when I look at my wife's it would appear that lender first applied it to back dated interest that had built up, and now that the interest is caught up they apply it to principal and interest. All these are federal loans, we just have different service providers.


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