There are three general categories of debt. There is secured debt, such as mortgages and car financing. There is priority debt, which covers state and federal taxes, child support arrears, administrative expense, and other debts of that nature. Then there is general unsecured debt, which is credit cards, medical bills, personal loans, student loans, and any amount of it may need to be paid back in a Chapter 13 bankruptcy.
Our New Jersey lawyers at Gillman Capone are at your side as you navigate paying your debts in a Chapter 13 bankruptcy. Let’s explain a little bit about the types of debts involved and how you might go about paying them.
It is a case-by-case basis. Regarding unsecured debts like credit cards, medical bills, and personal loans, there are two tests that determine how much has to get paid back.
First, there is the Means Test, which we calculate for you based on your last six months of income. We will get a monthly average income amount and multiply it by 12. Then we see where you compare to the median income for your household size in New Jersey.
If you are above the median income for your household size, we then go to the second part of the Means Test, which is to deduct out from your monthly income all the allowable expenses under the Bankruptcy Code. We then see how much income is available at the end of the month, and you would have to pay back at least that amount per month to your unsecured creditors.
The second test is a liquidation analysis. In order to confirm a Chapter 13 plan, you must agree to pay back unsecured creditors the amount they would have received if you filed a Chapter 7. A liquidation analysis means we look at your assets, deduct any liens placed on them, and deduct any exemptions that the Bankruptcy Code allows on those assets, like the cost of sale and other things. Then we see if there is anything left over if a Chapter 7 trustee were to liquidate those assets.
For example, if you had $10,000 left over after monthly expenses, we would propose a Chapter 13 plan that pays back at least $10,000 to the unsecured creditor class. In a Chapter 13 plan, a person could pay back income taxes, mortgage arrears, real estate taxes, or car financing arrears over time.
The debtor can object to any claim by filing a motion objecting to it, and provide a basis or documentation supporting that request.
Payments are based on what needs to get paid back in your plan, which is always a case-by-case basis. Plans generally cover mortgage arrears, tax arrears, attorney’s fees, and payments to unsecured creditors. The Chapter 13 also trustee gets a commission based on the disbursements. We factor in that commission, and then divide that amount by the length of the plan, between 36 to 60 months, and that becomes a monthly payment.
If you have questions about what is involved with paying debts in a New Jersey Chapter 13 bankruptcy, call the dedicated team at Gillman Capone to set up a free case evaluation.
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