In a chapter 13 case, the debtor must make monthly payments to a trustee for 36 to 60 months. The monthly trustee payment is based on numerous criteria. A chapter 13 case is typically comprised of different classes of debt (i.e. priority, secured, unsecured). Certain type of debt such as priority (i.e. child support, certain taxes) must be paid through a chapter 13 bankruptcy plan, no matter the circumstances. The debtor must pay this debt and prove sufficient monthly disposable income to pay such debt. Payment of this debt cannot be eliminated.
A substantial part of the bankruptcy code deals with the various analyses that determine the portion of the unsecured debt (i.e. credit card debt) that must be paid. A debtor must pay no less than their unexempt equity in property towards the aggregate amount of unsecured debt, through monthly bankruptcy installments. In other words, if the debtor has real estate or personal property with a substantial value, the debtor is required to pay towards the total unsecured debt over the plan’s life- the property’s fair market value minus bankruptcy exemptions. It is not typical that any debtor has property with substantial value. However, generally, in the event that a debtor’s monthly trustee payment is based on this criteria, the monthly payment can never be modified to reduce the amount that is to be paid to the unsecured creditors.
Also, the debtor must pay no less than all of their monthly disposable income to the trustee, unless payment of 100% to all unsecured creditors will require a monthly payment of less than all of their monthly disposable income. Monthly disposable income is net income minus necessary expenses- such as mortgage, food, clothing, transportation, utilities, etc. Monthly disposable income is based on two criteria. If a debtors’ payment is based on monthly disposable income and there is a substantial change in circumstances regarding income or expenses, the monthly payment may be modified to the changed monthly disposable income.
A debtor can include a certain amount of secured debt in a chapter 13 bankruptcy case. For example, a debtor may save their house from foreclosure by curing the arrears through the bankruptcy plan, while maintaining monthly payments directly to the mortgage company. A debtor may save their auto from repossession, by paying their auto arrears through the bankruptcy plan. Typically, if a debtor is no longer able to afford the trustee payments that include mortgage or auto finance arrears, he may wish to surrender the property and reduce the monthly payment. However, the debtor must continue to pay all disposable income through the plan.
You may contact Bankruptcy Lawyer Robert Manchel at 1 (866) 503-5655 to discuss your chapter 13 payments in NJ.