Bankruptcy : How to Lower Chapter 13 Payments
Bankruptcy Attorneys in Chattanooga, Tennessee (TN)
Chapter 13 bankruptcy is a court ordered, court supervised plan to repay your debts over a period of 3 to 5 years. When a person files for bankruptcy under chapter 13 of the US bankruptcy code the person and his/her attorney prepares a Chapter 13 Plan which is the debtor’s proposal for payment of secured and unsecured debt. The proposed chapter 13 plan is presented to the bankruptcy court for approval. Sometimes this payment plan proposes to pay 100% of the unsecured debt as well as any arrears on secured debt like house or car payments. There are times when a person can propose to pay less than 100% of the unsecured debt – speak to a bankruptcy attorney about this issue.
Can you change your chapter 13 plan after it is approved by the court?
Once the debtor’s proposed chapter 13 plan is approved by the court, it can not be changed or modified without court approval. If you are presently in an active Chapter 13 Bankruptcy, you may be wondering can the Chapter 13 Plan payments be lowered? There are times that once a Chapter 13 bankruptcy case reaches a certain point that the plan payments can be lowered. There are a few factors to consider when :
- Has the time limit for creditors to file claims in the chapter 13 case run out?
2. Have all creditors that you listed in your bankruptcy petition filed a claim?
3. For the creditors that filed a claim in the Chapter 13, was the amount of the claim less than you reported in your bankruptcy petition?
Debts Paid Off During the Chapter 13 Does not Automatically Lower Plan Payments
Contrary to a popular notion the fact that some creditors have already been “paid off” through the Chapter 13 payment plan, does not mean that the payments can be lowered. A Chapter 13 bankruptcy plan is calculated using all of the reported debts and balances in the bankruptcy petition, and usually includes maintenance payments on secured assets like house and car. A Chapter 13 Plan is calculated based upon the total amount of debt to be paid off, plus any maintenance payments, the Chapter 13 Trustee‘s fee, any applicable interest on priority or secured claims, attorney fees (if any), and court costs (if any). For example, in a simple chapter 13 bankruptcy with $50,000.00 unsecured debt, and a home mortgage to be maintained at $800.00 per month the base plan payment on a five year chapter 13 bankruptcy plan would be as follows (rounded numbers):
$833 per month to pay off the unsecured debt
$800 per month to maintain the home mortgage
$57 per month for the Chapter 13 Trustee’s Fee
- $1690 total chapter 13 plan payment per month
The plan payment was calculated by dividing the total unsecured debt by sixty months, then adding the home mortgage payment, and the bankruptcy trustee’s fee of 3.5%. Regardless of when a certain unsecured debt is paid in full, the total debt to be paid over the course of the Chapter 13 plan remains the same.
If Creditors Do Not File a Claim in a Chapter 13 Bankruptcy The Plan Payments May Be Lowered
However, if some of the creditors fail to file a claim within the required time period then the claim would be barred, and the Chapter 13 Plan may be able to be modified to lower the payment. For example, instead of $50,000 in unsecured debt, if the creditor claims total $40,000.00 the required Chapter 13 Plan payment would be $667 for unsecured creditors plus the $800 mortgage payment and $51 Trustee fee for a total plan payment of $1518 per month.
In order to lower a Chapter 13 bankruptcy plan payment a bankruptcy attorney would need to file a Motion to Modify the Plan, and provide notice to all creditors of the Meeting of Creditors to review the proposed modified plan. It is possible for creditors to object to modified chapter 13 plan which lowers payments, but usually this is not the case.
If you currently have a bankruptcy attorney contact that lawyer about the possibility of modifying your chapter 13 plan. If you do not have an lawyer then contact a Purple Law Firm bankruptcy attorney to explore this option.
A Change in Circumstances May Allow for a Modification of Your Chapter 13 Plan
It is possible to modify a Chapter 13 Plan in the event of a change in circumstances like the loss of a job or substantial reduction in income. However, this is a very limited option, and would depend heavily upon whether your current Plan provides for less than 100% repayment, and must be reviewed carefully with your bankruptcy lawyer . In this event it would be more likely for a creditor to object to the confirmation of the modified plan.
If you have not filed bankruptcy and are exploring the options speak to a bankruptcy attorney about Chapter 13 and Chapter 7 bankruptcy, and ask about the requirements and benefits for each.
Purple Law Firm’s Chattanooga Bankruptcy Attorneys Can Help You
If you live in or around Chattanooga, Tennessee your bankruptcy case is most likely filed in the US Bankruptcy Court for the Eastern District of Tennessee. Purple Law Firm in Chattanooga, Tennessee has over 29 years experience helping people like you resolve their debt problems through chapter 13 bankruptcy. Our lawyers for bankruptcy have extensive experience in modifying chapter 13 plans or converting a chapter 13 to a chapter 7 bankruptcy. If you are presently in a chapter 13 contact (by email or call (423) 899-0131) one of our bankruptcy attorneys in Chattanooga, Tennessee, about how to lower your chapter 13 payments.