Daily Archives: October 4, 2012

Chapter 13 Bankruptcy Plan Feasibility

 

Chapter 13 bankruptcy, and Chapter 11 bankruptcy, are payment plan bankruptcies, unlike Chapter 7 bankruptcy, which is to wipe out debt.

Being payment plans, you pay some of your debts in Chapter 13 or Chapter 11, but perhaps a small percentage.

How much you pay depends, among other things, how much you make.  But, of course, you have to be making a surplus of income over your living expenses for any bankruptcy plan to work.

An Idaho politician lost his primary, which is difficult to do, but his Chapter 13 bankruptcy plan relied on his legislative salary as income.

As the Seattle Times story on his troubled Chapter 13 bankruptcy plan states:

“it relies on an income source that will disappear at the end of this year: his legislative salary.”

 

Chapter 13 plans must last for 36 months, unless creditors are paid 100% before that time.  So, if you are projecting making payments for 36 months, you better show income for that length of time sufficient to fund your plan.

Or you get the well known Chapter 13 Trustee objection:  the plan is not feasible.

I see this with clients in denial about being able to afford to keep their home, they give me a budget that puts 50% or more of their income towards a house, and leaves $20 per month to feed a family of four.  Not feasible, ain’t gonna happen, court will not confirm.

That was not the only problem with our tax protesting Idaho legislator’s case:   he owes over $500,000 in taxes.  Almost all of that debt is unsecured, so, he exceeds the debt limit for filing Chapter 13 bankruptcy.

Having cited the Seattle Times article, I have to make the corrections to the following:

Chapter 13 bankruptcy is the most common form of bankruptcy; it allows a person with regular income to reorganize debts by setting up a plan to pay a certain percentage of them back over 46 to 60 months. Chapter 7 liquidates a debtor’s assets and wipes clean his debts; Chapter 11 is another form of reorganization.

Chapter 7 is the most common form of bankruptcy.

As previously stated, 36 months is the minimum length for a Chapter 13 bankruptcy plan.

You can’t believe everything you read in the papers!

Check with an expert.

🙂

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