We receive frequent questions about what factors can impact a chapter 13 bankruptcy plan as well as how that plan is determined. The following is a breakdown of some of the factors that can affect a possible chapter 13 plan payment and a description of what is involved in such a plan.
The "means test" is the main factor used by the court in determining whether an individual qualifies for a chapter 7 bankruptcy. In nearly all cases, if you do not pass the means test, you cannot file a chapter 7 bankruptcy.
The means test uses a snap shot of income received during the 6 months preceding the filing of the case and compares this to certain allowable expenses and IRS allowances. For example, if a case was filed in April, the look back period is October to March (which is 6 months).
The expenses and deductions indicated in a bankruptcy filing are either an average of what was incurred over the preceding six months (including items like tax deductions, insurance expenses, charitable contributions) or a 60-month average of what you would incur over the course of a 60-month chapter 13 plan (including car payment, administrative expenses). While the form is by no means a perfect way to evaluate a case, the bankruptcy court has to have some way to compare cases and this is the mechanism they utilize.
The results of the means test for a chapter 13 case are used to determine the required monthly payment to the court, which distributes the funds to creditors. The disposable monthly income, or DMI, is the amount that must be paid to the unsecured creditors in a chapter 13 case (DMI x 60 months).
Also paid through the chapter 13 plan are the trustee and attorney fees, as well as your car payment.
Another option to address debt is through debt negotiation. That is the possibility of settling individual debts without filing bankruptcy.
It is difficult to determine what percentage to expect to pay when settling debts, as the status of the account and creditor's settlement procedure can vary greatly. As wide a range as this may seem, we can reasonably expect to settle the account for 15% to 75% of the balance due (but each client and each situation is different).
We, of course, push for lowest possible settlement, but it will come down to the willingness of the creditor or collection agency to negotiate. Most debt collectors and creditors realize that getting paid something, if only a fraction of the amount of the debt, is better than getting nothing.
Stressed out from too much debt? Do you need a fresh start? We're here to help you. Call us at 678-215-4106.
Attorneys Bill Sherman and Valerie Sherman and the great team at the Sherman Law Group will help you navigate the entire bankruptcy system. We proudly serve the entire Atlanta metro area and North Georgia.
Let our experience help you. We've proudly served as a Magistrate Judge, an Assistant Attorney General and as a Senior Assistant County Attorney.