Filing for bankruptcy is seldom an easy decision, but it can mean relief from the burden of overwhelming debt. In most cases, individuals file either for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 involves the liquidation of some unnecessary assets to repay part of the debt, followed by the discharge, or cancellation, of the remaining debt. Not everyone qualifies for this type of bankruptcy.
If you qualify instead for Chapter 13 bankruptcy, you will not lose your property to liquidation. Rather, you will submit to the court a plan for repaying as much debt as possible over the next three to five years. Then the court may discharge the debt that remains. The payment plan can be a complex part of Chapter 13, and you may have many questions about how to arrive at an acceptable calculation for repayment.
Doing the math
Obviously, if you could take your income and divide it among your bills so that all your creditors get what they ask for, you would not need bankruptcy protection. Your payment plan through Chapter 13 involves a more complex calculation that takes into consideration the following factors:
- The total amount of income you receive, including any Social Security payments, spousal support, pensions, upcoming bonuses and other sources
- The amount of all your monthly expenses, which may include each separate utility or a flat sum suggested by the Internal Revenue Service, depending on state laws
- The calculation of your disposable income, which is the balance after subtracting your necessary expenses from your total income
- The amount of any priority debts, such as child support, income taxes or outstanding wages you owe to employees, which the court will add to your disposable income
- The value of any nonexempt assets, which are those assets that the court would not have liquidated if you had gone through Chapter 7 bankruptcy, and which are also added to your disposable income total
This amount becomes your new total that you will divide by the number of months in your bankruptcy plan. The result is the monthly payment you will make to the trustee assigned to your case, and he or she will distribute the amount to your creditors.
As you can see, arriving at a payment can be quite complex with many variables. While it is possible to handle a Chapter 13 by yourself, there are many opportunities for mistakes and missteps that can complicate your situation. Instead, many find the assistance of a Pennsylvania attorney a great comfort throughout the process.