What is Chapter 13 Bankruptcy? (Part Two)

Written by Summerville Bankruptcy Lawyer, Russell A. DeMott

Chapter 13 bankruptcy is all about payments.   As I’ve said before, the Chapter 13 bankruptcy trustee is happy if you “pay early and pay often.”   That’s true here in Charleston, and it’s the same in all other bankruptcy districts.

But how much do you pay?   As Kurt explains, that depends if you have non-exempt property you wish to keep.

What’s Non-Exempt Property?

When you file bankruptcy, you may claim state or federal exemptions.   Exemptions are lists of property protected from creditors.   In some states–like Michigan where Kurt practices–you may claim either state or federal exemptions.   In South Carolina, however, the legislature has “opted out” of the federal exemptions, and you may only claim state exemptions.   (Special rules apply if you’ve moved to your current state of residence in the last two years.)

Let’s say you are over the amount of your exemption for your car.   In South Carolina, you are allowed $5,150 of equity (value less liens) in a vehicle.   If you’ve got a vehicle worth $9,150 you’re over your limit by $4,000.   So if you wish to keep the vehicle, you must pay the Chapter 13 trustee the non-exempt amount of $4,000.   (Actually, you’d pay $4,000 less hypothetical costs of sale–perhaps $500.)   So for debtors who have property they do not wish to have the Chapter 7 trustee liquidate (sell), Chapter 13 is a good option.

Your Budget is Very Important

You need to take great care in preparing an accurate budget.   After all, this is what you are proposing to live on for the next three to five years, unless you complete the plan early like Kurt suggests paying your creditors 100%.   Don’t forget all your medical expenses, pet expenses, transportation costs, professional dues, and charitable giving, just to name a few expenses that need to go into your budget.

The Means Test

If your income is over the median income for your household size, your Chapter 13 payments will largely–but not exclusively–be determined by the “means test,” which allots certain amount for various household expenses–so much for housing, transportation, food, and so on.   But you can also add expenses to the means test–things like life insurance payments, amounts you regularly contribute to charity, and additional medical expenses, just to name a few.

Timely Chapter 13 plan payments and attention to detail often make the difference between a successful Chapter 13 “reorganization” and a failure.

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