If you have debt and need some relief, you may be curious about your bankruptcy options. There are two types of personal bankruptcies available to South Carolina residents: Chapter 7 and Chapter 13. If you are wanting to keep your property and have sufficient income to make some type of payment to your creditors, Chapter 13 may be right for you.
If your petition for a Chapter 13 bankruptcy receives court approval, you will need to make monthly payments, which will go to pay off your creditors. How is the monthly repayment amount determined?
Chapter 13 basics
A Chapter 13 bankruptcy may be available to anyone in debt but still has disposable income that you can use to pay creditors. Filing for this type of bankruptcy involves submitting a petition to the court, along with any supporting documentation of debt and income level, as well as a proposed repayment plan.
If approved, your repayment plan will last three to five years. You’d think that it would be easy to just add up all your debts and divide it by the number of months you are allotted to repay them in order to figure your monthly obligation, but that is not how it works. It is actually quite a bit more complex than that.
Monthly repayment calculation
The court looks at a number of things when it comes to determining if a proposed repayment plan is acceptable. These include the following:
- Yearly income
- Yearly expenses
- Disposable income
- Type of debt
- Debt amount
- Nonexempt assets
When it comes to yearly income, the court will want documentation of all your sources of income. So if you have a job, the court will want to know how much you get paid annually and if you receive any bonuses or pay raises. If you receive alimony, that counts toward your income. If your collect a pension, social security, unemployment or disability, it all counts as income.
Now, let’s figure it out. Say you make $60,000 per year. Your qualified annual expenses come out to $50,000, your debt payments come out of the remaining $10,000 and your nonexempt assets have a value of $5,000. By subtracting your expenses from your income and then adding the value of priority debt and nonexempt assets, the amount you owe will come out to about $25,000. If you have 60 months to pay it off, your monthly obligation will be roughly $417. Any debts that exist after that may qualify for discharge.
If this calculation is confusing to you, it is okay. You are not alone. With assistance, it is possible to figure this out and then take the steps necessary to seek approval of your plan and a Chapter 13 discharge in court.