How to Decide a Chapter 13
Many Americans struggle with financial dilemmas and crisis during times of economic downturn and recession. As a response to the economic and financial climate of a struggling economy, many also turn to filing for bankruptcy as an alternative to catching up on payments and working things out. However, there are many stipulations to bankruptcy as well as different types of bankruptcy to consider as they plan out their financial decisions.
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Things You'll Need
- Computer with Internet access
- Pen
- Paper
- Previous pay stubs for six months
Instructions
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List your current income level and any expected changes that could determine whether or not you can afford payments while you are under Chapter 13. Write down your projected monthly expenses as well. Knowing what kind of financial commitment you are capable of ahead of time can help to navigate through bankruptcy planning and decision making. If you are facing foreclosure on your home, then you will not need to figure the mortgage payment into your projected monthly expenses.
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Remove dischargeable payments from your budget, which would be removed anyway if you file for Chapter 13. Dischargeable income includes those that are from medical bills, credit cards or other unsecured debts. Only secured debts and non-dischargeable debts will need to be paid through your bankruptcy plan. Also remove other garnishments such as 401k loan repayments.
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Write down your previous six months income. Bankruptcy court will review your income from the previous six months to determine whether or not you will qualify for Chapter 13, based on your ability to make payments on certain debts such as your mortgage or car payments in addition to paying for basic living expenses. In bankruptcy terminology, your previous six months income is referred to as your means test.
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Evaluate all of your assets. When you go to bankruptcy court, you will be required to disclose all of your assets. Consult with a bankruptcy lawyer about any assets that are exempt from disclosure. Assets that are not exempt include automobile accident claims or inheritances. If your assets are exempt from disclosure, then you may be able to file under Chapter 7 without losing any of your assets; however, if you do have non-exempt assets, then Chapter 13 may be a better decision.
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Calculate your debts. Draw up three columns on a sheet of paper. One column should have a list of unsecured debts, such as credit cards and medical expenses. The second column should have secured debts, such as your mortgage or car payment. In the third column, you should have any taxes that you expect to pay for the year. If you find that unsecured debt exceeds your income, then you may be able to file under Chapter 7 rather than Chapter 13. However, Chapter 13 may be more appropriate for your situation if the second or third columns exceed your income.
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Review your mortgage terms. If you have a fixed rate mortgage, then you will be able to easily predict the payments that you will be responsible for over the next several years. However, if you have an adjustable rate mortgage, then a higher interest rate will very likely raise your house payments within the next couple of years. Consult with your mortgage company to see if it would be willing to lock in your interest rate while you are under Chapter 13. Also consult with the mortgage company to figure out what your mortgage arrears are and what financial responsibilities you will have to keep to pay both the mortgage payment and the arrears under Chapter 13. Based on your income, and if you are given the option, decide on whether you want to pursue a 36-month bankruptcy plan or a 60-month plan.
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