How does a Chapter 13 Bankruptcy Budget Work? Your Chapter 13 Budget Questions, Answered!
Trying to determine the best debt resolution can be daunting. You may hear about others peoples' experiences (positive or negative) and wonder - what is right for me? You may be considering credit counseling debt management plans versus debt consolidation through a Chapter 13 and still be left with questions. We are here for you. We offer free consultations to help you determine the best plan for lasting debt resolution. While we specialize in Chapter 13 and Debt settlement, we will give you and honest and unbiased evaluation of all your available options and help you to weight the pros and cons. Call us today at 866-261-8282 or set up an appointment online.
Below are some of the common questions we get regarding the Chapter 13 budget plan:
- Will I have enough money to "live"?
This is probably the biggest question or concern that we hear from potential clients. The answer is yes - not only is the budget set up to prioritize your ongoing living expenses (food, clothing, utilities, etc.) over your unsecured creditors, but the plan also derives the monthly allowed expenses from IRS standards. Is it a plush budget? No, but it is sufficient and the debt reduction benefits outweigh the discipline necessary to follow-through with the outlined budget.
- How long does the Chapter 13 plan last?
The plan is designed for a minimum of 36 months to a maximum of 60 months. We will determine the timeline based on a number of factors, including your total debt, your monthly expenses and your income. Extending the plan to 60 months will typically lower the payment because you are paying back the debt, or a portion of the debts, over a longer period of time. A 36 month Chapter 13 plan only requires that you make your best efforts to pay back your debts over that time period and whatever is left unpaid is legally eliminated at the completion of the case with your court discharge.
- My budget is currently unbalanced based on my income and outstanding debt - would I qualify for the Chapter 13 and if so, how would it help my circumstances?
The purpose of the Chapter 13 Plan is to restore balance to your budget. We have many tools available through a Chapter 13 Plan to provide debt reduction and debt elimination in order to bring your budget in-line. Through the budget plan we can:
- Reduce the interest rate on your vehicle loan to a reasonable rate. If you have owned the vehicle for over 2.5 years we can actually reduce the amount that you owe to the creditor.
- Remove a 2nd Mortgage or Home Equity Loan to bring your overall mortgage debt back in line with today's home values.
- Reduce interest rates to unsecured creditors (i.e. credit card, medical bills, personal loans, etc.) to 0% interest. You only pay back what you can afford in your budget over the 36 -60 month timeframe and any remaining balances are eliminated at the completion of the program.
- What if my income or expenses change?
The Chapter 13 plan is flexible. We can amend your income and/or expense schedules at any time to reflect changes. We can lower the payment by extended the plan out or by showing increased expenses that are paid directly. We can also increase the payment if you wish to complete the program early. If your circumstances drastically change (i.e. total loss of income) we can investigate converting the case to a Chapter 7 to eliminate any remaining unsecured debt obligations for a fresh start. The bottom line is - you have options.
We propose the budget based on your individual circumstances - your income, expenses and outstanding debt. The plan is unique for everyone and is not a cookie-cutter debt management plan.
- Do my creditors have to approve the Chapter 13 budget?
Your creditors do not "approve" the budget, the court does. The creditors however do have a chance to review the budget. They are also required to provide documentation to the court regarding what you owe (called a Proof of Claim). If they fail to do so, they will not get paid and the debt will still be eliminated. If we disagree with their claim, we can object. Likewise, the creditor can object to the budget treatment and the court and Trustee are there to settle the dispute. That court oversight is welcomed if you have struggled alone dealing with difficult creditors. Unlike most debt management programs, the Chapter 13 forces creditors into certain repayment terms (i.e. 0% interest repayment on unsecured debts) that they can't object to - it is provided for under the law.
- Can you eliminate debt at the completion of the Chapter 13 budget plan?
Yes, most often people experience some debt elimination through the budget process. Remaining balances on unsecured debts are eliminated at the end of the budget plan with a legal court discharge. Reducing your debt to income ratio throughout the Chapter 13 plan will work to improve your credit throughout the program.
- How do my creditors get paid?
Your creditors get paid through an established hierarchy:
- Secured creditors, such as your first mortgage, vehicle, etc., have the highest priority.
- Priority creditors, such as the IRS have the 2nd highest priority.
- Unsecured creditors, such as credit cards, medical bills, personal loans, loan deficiency debt, old utility bills, etc., have the lowest priority and will be paid last (if at all).
There is a court appointed Trustee that distributes payments to the creditors you include in the plan. There are still certain bills or payments that you may choose to pay directly if you are current on your payments, such as your mortgage. You continue to pay the bills for your ongoing monthly living expenses, such as gas, insurance, groceries, utilities, etc. Having a Trustee make certain payments takes the stress off monthly bill paying and ensures timely payments to your creditors, which is a very important factor in improving your credit score.
Chapter 13 Budget Examples, Sample Plans and Free Budgeting Tools
As stated, each Chapter 13 plan is unique. But here are links on our site to budget examples to give you a sense of how the plan is structured and the benefits that can be derived as well as some free budget tools and calculators.
Learn for Yourself
It is natural to seek opinions or read about other people's experience with any debt reduction option. But at the end of the day, each person's circumstances are unique. What worked for someone else might not work for you and vice versa. We have found that it is best to seek out a professional you trust to give you a firsthand analysis of what is best for you. We hope you read our reviews, review our attorney profiles and check with the Better Business Bureau - and find that you can trust our experience to work for you. Call us today at 866-261-8282 to speak to a licensed Michigan Chapter 13 attorney today.