One thing people do not talk about when contemplating whether they should file a Chapter 13 Bankruptcy, is just how difficult being in a Chapter 13 Bankruptcy is going to be and how it is going to affect your day-to-day life. It is not only difficult because it requires a payment plan which will last three to five years, but it is going to be difficult to find extra money for unexpected expenses.
A Chapter 13 Plan requires you to pay all of your disposable income into your plan. What this translates to could be the following:
Based on the median income and median expense numbers for your state, the average household of 4 spends an average of $2,000.00 per month on rent/mortgage payments, food, gas, electricity, and all other necessary monthly expenses. Your monthly gross income is $4,000.00 per month when you file a Chapter 13 Bankruptcy. Luckily, you have a car payment of $400 per month, which you can use as a deduction on your MEANs test. In this scenario, you could potentially be paying well over $1,000 per month to your Trustee. This leaves barely any extra funds for any other expenses other than necessities. Not to mention anything that unexpectedly pops up such as a necessary home repair, or the need for new tires for your car. (It is important to note that your necessary monthly expenses are not based on what your family actually spends. It is based on what the average family of your size spends in your state.)
Another thing that makes being in a Chapter 13 Bankruptcy so difficult is that even funds received through an insurance payout might be subject to your bankruptcy estate. For example, if you get into a car accident and total your vehicle, the proceeds you receive from your insurance company or the party-at-fault’s insurance company might have to be turned over to your Trustee. Another example would be if you file a claim against your homeowner’s insurance policy. Those proceeds would be treated in the same way. Continue reading →