When you file for Chapter 13 bankruptcy in Maryland, the court uses specific rules to determine what you can afford and what creditors must receive. As a regular wage earner, you may be wondering how much you actually have to pay each month.
Your Chapter 13 repayment plan has essential components for reorganizing your debt while allowing you to keep your property. Understanding those legal requirements can help you determine your monthly payments.
The disposable income formula
The first step is to determine your current income by averaging all income received during the six months before filing, excluding Social Security. Then you subtract all reasonable and necessary expenses along with required payments. The remaining amount is your disposable income and determines what you may pay creditors in a Chapter 13 repayment plan.
Priority and secured debt requirements
Certain debts are priority obligations that you must pay in full through the repayment plan, including:
- Past-due child support
- Alimony payments
- Some recent tax debts
If you are behind on your mortgage or car loan payments, Chapter 13 also allows you to catch up while keeping your home or vehicle. Instead of paying the full arrears immediately, the past-due amount is spread over the payment period (three to five years).
The best interest of creditors test
Unsecured creditors, like credit card companies and medical bill providers, must get at least as much in Chapter 13 as they would in Chapter 7. If the Chapter 13 plan would pay less than that amount, it will not satisfy the test.
Additionally, Maryland exemption laws decide which property you can keep in Chapter 7. Every dollar of equity you can successfully exempt is a dollar you do not have to pay your unsecured creditors in Chapter 13.
Role of the bankruptcy trustee
The trustee reviews your Chapter 13 plan and budget to ensure the payments are realistic, manageable and proposed fairly before the judge’s final decision. If your financial situation changes, the trustee may sometimes adjust your payments.
Why accuracy matters
Maintaining accurate numbers and a realistic budget is essential to getting a Chapter 13 plan confirmed. A lawyer can help ensure your plan serves your best interests while keeping it on track throughout the repayment period.