Filing a Chapter 13 Bankruptcy is a very difficult decision to make. The main reason deciding to move forward with a Chapter 13 Bankruptcy can be so difficult is because it can bring with it many limitations that can be hard to swallow.
Working with your attorney, and ultimately your Court appointed Chapter 13 Trustee, you will be put into a Chapter 13 Plan and required to make monthly payments to your Trustee for three (3) to five (5) years. At first this doesn’t sound too bad since you will just make monthly payments for the next three (3) to five (5) years as you would when you finance a new vehicle.
Then you find out more.
Your Chapter 13 Plan is based on your household income, household size and debts. Your payments also must be equal to ALL of your disposable income unless you are going to pay back 100% of your debt. This means that after you pay all of your allowed necessary and monthly expenses (determined by the average household expenses of the same size household in your area), the rest of your money must be turned over to your Chapter 13 Trustee each month.
Then you hesitate.
All of my disposable income? What expenses are deemed necessary and allowed? What if an unexpected expense comes up? What if I get sick or my spouse has to be rushed to the hospital? What if something goes wrong with the car’s engine? The car will need new tires soon, ect., ect. These, along with many other questions, start racing through your mind. Given that all of your disposable income will be given to your Trustee each month, how are you expected to have the necessary funds when an unexpected emergency arises? You think, if an unexpected expense comes up, I’m bound to fall behind on my Chapter 13 Plan payments.
BUT, an unexpected expense does not necessarily have to mean your Chapter 13 Bankruptcy will fail and you will have to start from the beginning. Generally, you are given a reasonable amount of time to bring your payments current because:
1. When you fall behind on your monthly payments, your Trustee may file a Motion to Dismiss Chapter 13 Case due to lack of payment.
2. In many cases, the Judge may deny this type of motion the first time it is filed and give you a specific time period in which to bring your payments current.
3. If you fail to bring your payments current within the specified time set by the Judge, the Judge may then automatically dismiss your Chapter 13 Bankruptcy.
4. If your Chapter 13 Bankruptcy is dismissed, you will have fourteen (14) days in which to file a Motion to Vacate the dismissal.
5. The Motion to Vacate will then be set for hearing.
6. At the hearing you may be granted another sixty (60)days to bring your Chapter 13 Plan payments current.
In short, just because a Chapter 13 Bankruptcy puts some very big limitations on your monthly income, leaving little to no room for unexpected expenses, you can still have a very successful bankruptcy and walk away at the end debt free. If you would like to know more about filing a Chapter 13 Bankruptcy, please contact the Law Office of David M. Goldman, PLLC today.