Do I Have to Pay Off Everything in My Chapter 13 Plan?

If you do not pass the two-part means test for Chapter 7 bankruptcy, you may have to turn to a Chapter 13 bankruptcy petition. Of course, your initial concern may be how much your monthly repayments will cost, how long you will have to make these payments (i.e., three or five years), and whether you can afford this plan sustainably. After all, the payment amount may not be negotiable, but it is calculated and ruled on by the Kentucky Bankruptcy Court. With all this considered, please read on to discover whether you will be expected to pay everything off in your Chapter 13 repayment plan and how a seasoned Louisville, Kentucky Chapter 13 bankruptcy lawyer at Schwartz Bankruptcy Law Center can help you better understand what you are signing up for.

Do my living expenses impact my Chapter 13 repayment plan?

Well, in a Chapter 13 bankruptcy case, the Kentucky Bankruptcy Court will expect you to pay your disposable income towards your three- to five-year repayment plan. Namely, your disposable income is considered the funds that are left over after your monthly living expenses, such as your housing, utilities, insurance, food, transportation, healthcare, etc.

However, the court may not look at what you actually spend on living expenses, but instead reference the IRS National and Local Standards as baseline guidelines for these categories. So, in reality, your actual living expenses may be more costly than what these guidelines state, meaning you have less disposable income to keep up with your monthly Chapter 13 payments.

If this is your predicament, your lawyer may help you justify these exceeding amounts before the court. For example, it may be because your commute to work is quite expensive, you have personal health issues that require intensive medical treatments, or your child or dependent has functional needs that come with special educational, healthcare, or daycare necessities.

Do I have to pay off every last debt in my Chapter 13 plan?

Essentially, the Kentucky Bankruptcy Court will first expect your disposable income to go towards your secured debts, priority debts, and bankruptcy trustee and lawyer fees. If there are any funds remaining, they may include your unsecured debts in your Chapter 13 repayment plan. This is to say that you may not pay off your unsecured debts fully through this bankruptcy.

Besides looking at your disposable income, the court may conduct a “liquidation test” for your outstanding unsecured debts (i.e., medical bills, credit card bills, etc). Here, they may calculate whether your unsecured creditors will, at the very least, receive as much as they would have if you pursued a Chapter 7 bankruptcy filing instead.

If the court has reason to believe that your unsecured creditors would be treated unfairly in your Chapter 13 bankruptcy proceedings, they may begin reviewing your non-exempt assets. Rest assured, you may not be asked to sell your non-exempt assets at this time. Although they may increase the minimum amount you are ordered to pay to your unsecured creditors.

If you wish to explore your legal options moving forward, please allow a competent Louisville, Kentucky consumer bankruptcy lawyer from Schwartz Bankruptcy Law Center to be your guiding force. Please schedule your initial consultation with our firm at the first chance you get.