Bankruptcy is about providing relief to folks who can’t really afford their debts anymore. But we often hear from folks who have heard that Chapter 13 can’t help because they won’t have any money left over to live on. Like many rumors, this one is usually not true.
Bankruptcy is one of the most common things in America today — that no one talks about. More than a million households file every year. And everyone keeps it a secret. So when friends open up to each other about their case, it’s often to complain. For example that their Chapter 13 payments are too high. From then on, everyone “knows” that wage earner payment plans are too high.
Why would the payments be too high? After all, Chapter 13 is meant to allow for payments you can afford based on your current income. Yet sometimes the payment has to be more than your budget says you can afford — but that is often because of choices our clients make, not the law.
For example, Congress has not allowed us to modify most mortgages. So if your monthly mortgage payment is too high for your current income, then no matter what else we can do with the payment plan, we can’t really fix the real problem — your house is too expensive for you now. That’s a horrible reality a lot of people in Chapter 13 are dealing with but the only real solution is something they have chosen to not use — giving up the too-costly home.
Sometimes the problem relates to the kind of debt someone owes. The law will generally require your plan to repay in full certain kinds of debt — priority claims. In every day terms, that is taxes and back child support (or alimony). Then it becomes a math problem — how much is owed divided by the amount of time the law allows the plan to go (max: five-years). If that by itself is more than you can reasonably devote to the monthly payment, Chapter 13 might not be a great solution to your situation. It might be the only useful one but this situation is far from routine.
Occasionally the problem is a failure to communicate. Our office has plenty of clients who are paying back more than the absolute minimum in Chapter 13 because they can afford to. Or that’s what we understood. Every so often, a client will finally break down and tell me they’ve been getting by on unemployment for months — and I could have changed their payments to help out all along. Plans can sometimes be changed after the court has approved them, if the facts of life change for you.
So if you’re in Chapter 13 or thinking about it and you think the payments are too high, talk to your bankruptcy lawyer. Don’t assume there’s nothing that works for you.
The important point is this: Everyone’s life is different. So are their debts. Chapter 13 usually is not a straight jacket. It’s a tool and it can be very good at many things — if you use it right.
Photo Credit: U.S. Trade Representative
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Last modified: August 26, 2013