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Demystifying Chapter 13 Plan
How much of your debts do you have to pay back in a Chapter 13 Plan? The answer depends in two factors:
- Type of debt
- Amount of available income.
Debt is classified as either secured or unsecured. Secured debt includes home mortgages, home equity lines and car loans. If you want to retain you home or your car, you have to pay back 100% back of your secured debt. The Chapter 13 Bankruptcy Plan must include all arrears on secured debt and a percentage of unsecured debt. If you are current on your mortgage, you do not have to pay the principal in full. Only the arrears are included into the Plan.
Also, included in the Plan are the administrative expenses, such as Trustee commission and unpaid legal fees.
To determine the amount of unsecured debt that must be paid in the Plan, you must work backwards to calculate your available income. For example, your net monthly income is $5,000 and your monthly expenses are $4,600, your available monthly contribution to the plan would be $400 per month. If you are required to do a 60 months plan, your total contribution will be $24,000 to the Plan.
If your administrative and secured obligations are $14,000, your unsecured obligation under the plan is $10,000. If your total unsecured debt is $100,000, your total obligation to unsecured creditor would be 10% of your debt.
Chapter 13 Bankruptcy is a viable and attractive option to many individuals strapped with debt.
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