Jefferson County Alabama plans to exit its bankruptcy
paying only $100 million of $4.2 billion of its debt.
Can You Get This Deal? Pay 2% of Your Debt?
Well, like I always say, it depends.
Chapter 13 bankruptcy allows an individual, so long as you owe less than the debt limit, to pay a percentage of what you owe unsecured creditors, over time.
So, NOT for corporations or partnerships, or other legal entities. Just for people.
And, people who have regular income. Does not have to be a job, could be social security or some other payment, so long as it is regular.
And, you have to owe less than a certain amount. The Chapter 13 debt limits are changed periodically, with inflation.
How Much Do I Have To Pay In Chapter 13 Bankruptcy?
There are a couple of tests that apply.
One, you must pay AT LEAST what creditors would get IF you were in a Chapter 7
So, the schedules, the bankruptcy paperwork you have to file is the same as what is filed for Chapter 7 cases, except there is also a Chapter 13 bankruptcy plan.
The other schedules show all your property, and what it is worth, and the exemptions you claim.
Analyzing these is called the liquidation analysis. If your creditors would get $5,000 if you filed Chapter 7, your Chapter 13 plan MUST pay them at least $5,000.
Unless you are paying 100% of your debts in less than 3 years, your Chapter 13 plan MUST
be at least 3 years long.
If your income is over a certain amount, the plan MUST be at least the maximum, which is
If you need a longer plan to accomplish your goals, you could file Chapter 11 bankruptcy,
but there are other considerations; including that it is much more time consuming AND expensive.
Last but not least, you MUST commit ALL of your disposable income over the life of the
plan, 3 years, 5 years, or in between.
Disposable income is what you make less your living expenses.
I know, I know, who the hell can tell what that will be so far into the future.?
Nobody, but, that is what the law requires.
So, if you project a $500 per month surplus, that is your plan payment, $500 per month.
In Detroit bankruptcy courts, income tax refunds received during a Chapter 13 case are also disposable income that you must pay to the Chapter 13 trustee.
So, if the liquidation analysis shows your creditors would get $5,000, which, at $500 per month, they would get after 10 months (not counting the Trustee fees taken off the top) you are not done, you have to keep paying the $500 per month until the end of your plan.
Income and expenses can change, and you can file plan amendments, or modifications, if
DO NOT TRY THIS AT HOME.