Chapter 13 Bankruptcy is a difficult process but can be a powerful tool. With the added benefit of keeping your personal property, keeping your home and having the ability to remove a 2nd or 3rd lien on your home, Chapter 13 does have many benefits.It takes careful planning for a successful Chapter 13 . So what makes a Chapter 13 difficult. There are several reasons listed below.
1. Plan Payment
Chapter 13 bankruptcy is a payment plan in which a payment is made to your trustee every month. The plan duration is either 3-5 years of payments. This may seem as a very long time however, you may be spending much more time paying your creditors outside of bankruptcy. When the plan is initially drafted it will include your current income and expenses. Unexpected changes such as expenses, loss in pay, marriage, divorce, child birth will contribute to how easily or difficult it will be to make your Chapter 13 payment. Adjustments can be made but it is important to make sure you advise your attorney of any changes of income so you and your attorney can plan ahead.
2. Bankruptcy Trustee
A bankruptcy trustee is assigned to each case. The chapter 13 trustee is required to administer your case and distribute your payments to your creditors under the bankruptcy code. The chapter 13 trustee will give his suggestion on whether to approve a chapter 13 plan to the judge assigned to the case. The trustee will make sure that all of your disposable income will be applied to your plan. Not only will the trustee analyze your income, the trustee will also look at your expenses to make sure they are reasonable. Documents that must be provided are pay stubs, proof of mortgage payments, and bankruptcy schedules that list your property and expenses. Furthermore, besides disposable income any nonexempt property’s value will have to be added to your plan. For example, if you have a car worth $4,000.00 that could not be exempt, that $4,000.00 must be included in your Chapter 13 plan payment and paid to the benefit of the creditors for the life of the plan.
3. Tax Returns
Your tax refund must also be applied to your chapter 13 plan payments. The reason is when you and your attorney draft your Chapter 13 plan all of your disposable income, meaning any income left after paying for all expenses must be applied to the plan. Your tax refund will be classified as disposable income. The trustee will ask for a copy of your taxes each year of your plan. If the refund is not given to the trustee he/she will move to dismiss your case.
Chapter 13 bankruptcy is a powerful tool. It takes commitment careful planning and some time. The most important aspect of Chapter 13 bankruptcy are making your payments to the Chapter 13 trustee After the plan is completed you will be able to move forward with no debt and a new fresh start.