Myth Busted: Most Can Afford A Chapter 13 Plan

06 Feb Myth Busted: Most Can Afford A Chapter 13 Plan

One of the most stubborn myths about bankruptcy is the one which says that chapter 13 requires full payment of all your debts over 60 months. If true, this would indeed rule out chapter 13 for most consumers. After all, what good wouldcomefrombeing granted 60 months to pay off all your debts? If you can’t afford your payments now, how in the world could you affordyour paymentsif you had only 60 months to pay them? This myth about paying your debts in full in chapter 13 is, happily, only a myth.

In fact, the law says something quite different: in chapter 13, your monthly plan payment is based on what you can afford. Then,and at the end of the chapter 13 case (either 36 or 60 months), all the remaining balances on your debts are wiped out, just like in chapter 7.

You might wonder how that can be fair to your creditors, but the answer is easy, and the law gives it full recognition– your creditors were slated to get absolutely no payment in a chapter 7, weren’t they? So how could it be unfair to pay them a dividend consisting of what you can offord, in a chapter 13? This is especially true when the law requires that you pay what you can afford into your chapter 13 plan, after paying all your reasonable monthly living expenses.

And no, there isn’t anycatch-22 lurking in chapter 13. Congress would not have bothered to enact chapter 13 if you had to pay more than you could afford as a monthly payment, because no one would be ever file chapter 13 if that were so. Also, lawyers wouldn’t steer clients into chapter 13 if the monthly payments were not possible forclients living in the real world to pay.

So think about it — maybe chapter 13 wouldn’t be such a bad idea for you after all. There’s no means test to worry about, you can get rid of more debts in a chapter 13, and your case is often subject to less scrutiny by creditors than a case under chapter 7. And whatever your reason for choosing chapter 13, you can be sure it will solve your debt problems just as effectively as a chapter 7.

Photo used by permission from Fried Dough.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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