If you don’t qualify for Chapter 7 bankruptcy because of too much income, Chapter 13 bankruptcy may be the best solution for you. We get calls from clients initially asking for a Chapter 13 without much information on what it takes to qualify for it. A Chapter 13 bankruptcy is much more work than a Chapter 7 bankruptcy because it involves the assembly of a Chapter 13 payment plan which can last 3 to 5 years. The Chapter 13 repayment plan helps repay debt back to your creditors (sometimes only patial repayment) and will get you back to current status on your accounts (including home loans). The payment plan is designed by the attorney based on your income and expenses. In order for the payment plan to be successful, the Chapter 13 payment plan must be approved by the bankruptcy court trustee. To stay current with all of your accounts, you will need to have enough income to pay the current scheduled payments to your accounts and also help repay any past due debts through the Chapter 13 bankruptcy payment plan. For the bankruptcy trustee to approve this payment plan, you need to be able to show that you have the income available to be able to make the current payment arrangement with your creditors, and, on top of that, be able to pay the bankruptcy trustee payment plan in the Chapter 13.
So, a stable, sufficient amount of expendable income is required to qualify for a Chapter 13. Many people look to a Chapter 13 when they are dealing with real estate issues because they know that the Chapter 13 can get you back to current in your home and keep you in your home for the long term, but if you don’t have stable expendable income to pay into a bankruptcy trustee payment plan, you will not be qualified for a Chapter 13. Let’s illustrate further by a simple example:
John has a $5000 mortgage every month. He is $50,000 behind on his mortgage. He has $10,000 of income every month and has $3000 in other living expenses outside of his mortgage. John would like to file for Chapter 13 bankruptcy because his mortgage bank is threatening to foreclose on his home due to his $50,000 of past due debt or arrears. John has a total of $8000 in expenses ($5000 mortgage + $3000 miscellaneous living expenses). His income is $10,000 per month. He has $2000 per month of expendable income ($10,000 income – $8000 expenses = $2000 expendable income). Because of his expendable income calculation, John’s trustee payment for the bankruptcy trustee payment plan will be $2000 per month. In this situation, John is able to pay his current mortgage and also pay for a bankruptcy trustee payment plan to cure his $50,000 of late mortgage payments.
This is an ideal situation for a Chapter 13 bankruptcy. If you do not have any expendable income to contribute to a bankruptcy trustee payment plan, you will not be able to qualify for a Chapter 13 bankruptcy.
Keep in mind that this is a very simple example. We understand that many people have very complicated situations than this and you may have many more questions about your debts. We can talk to you about your situation during an in-person or phone consultation with an attorney.
Contact us at (855) 257-7671 when you are ready to find out how we can help you.