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Determining payments in Chapter 13

On Behalf of | Oct 11, 2022 | Chapter 13 Bankruptcy |

Chapter 13 bankruptcy involves establishing a payment plan to settle debts. Each month, the Tennessee debtor must make the required payments over three to five years. Several factors determine how much the monthly amount is.

Monthly payment amounts

A colloquial term for Chapter 13 is wage earner’s bankruptcy, and monthly payment amounts derive from the debtor’s financial situation and discretionary income. Discretionary income generally refers to the remaining funds someone has available after paying for essentials, such as a mortgage and food.

The court will review how much income someone earns combined with the individual’s allowable monthly living expenses. Someone living in a luxury apartment that costs $4,000 per month would doubtfully find that obligation is allowable and may expect to move to less costly arrangements. Property owners can expect the court to look at a home’s value. Furthermore, the court will review debts owed, including auto loans and back taxes.

Chapter 13 filers will take a means test to determine the disposable income amount. The means test compares the debtor’s income with the state’s median income.

Dealing with debt

The court will review the different types of debt the person owes. Some debt falls under the category of prioritized unsecured debt, which may include child support. The debtor must pay the entirety of the prioritized debt. The same applies to critical secured debt, such as a mortgage. The payment plan factors these debts into its total.

The debtor may become free of obligations to pay certain remaining unsecured debt balances. Credit card debt could become totally or partially discharged. Not having to pay unsecured debt might make it possible for the filer to cover other obligations combined into the payment plan.