In Chapter 13 bankruptcy, it is required that the proposed repayment plan lasts for either three or five years, depending on your financial situation. For those whose average monthly income in the six months prior to filing for Chapter 13 bankruptcy exceeds the median income in their state, a five-year repayment plan is required.

Filers whose average monthly income in the same time period is less than the state median income may be able to file for Chapter 7 or Chapter 13 bankruptcy (granted they meet additional requirements and don’t have enough disposable income to fund a Chapter 13 plan). If Chapter 13 bankruptcy is chosen, these filers can opt for a three-year repayment plan with the payments dependent on your expenses and income.

If your income exceeds the state median, you will have to use amounts set by the IRS, instead of actual expenses, to calculate disposable income for purposes of repayment. As a result, higher earning filers may have to devote more time and money to debt repayment.

A Judge Must Approve Your Plan

You will not be able to proceed with a Chapter 13 bankruptcy unless a bankruptcy judge approves your proposed plan. Some creditors are entitled to receive 100% of the amount owed, while others will receive a smaller percentage or even nothing at all if you don’t have the disposable income left over after mandatory debts are paid. As an example, a Chapter 13 plan must include any child support you owe a spouse or child (different from government agency), otherwise the judge won’t approve. On the other hand, the judge may still approve a plan that doesn’t include the repayment of any portion of credit card debts as long as you show that you don’t have the disposable income left over after paying your mandatory debts, e.g., child support.

Disposable Income: You Might Have More or Less Than You Think

To most of us, “disposable income” means the money leftover after paying our expenses. Bankruptcy law defines it differently; because the new law calculates your monthly income as the average earned during the six months prior to filing for bankruptcy, and in some instances calculates monthly expenses according to IRS standards (not necessarily what you actually spend), you might discover that your disposable income as defined by bankruptcy law is more or less than what it actually may be.

For more information on the Chapter 13 repayment plan or any other topics discussed here, feel free to contact the Goldbach Law Group for a free, friendly, and confidential consultation!

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