If you are struggling to pay your debts, filing for Chapter 13 bankruptcy allows you to roll all debts into one monthly payment that a bankruptcy trustee then distributes among your creditors. A bankruptcy attorney from The Dansby Law Firm will evaluate your debts and your income to determine if you qualify for Chapter 13 and whether it’s the best option for you.
Applying the Means Test to Determine Qualification for Bankruptcy
To determine if you qualify for bankruptcy, we must perform a calculation called the Means Test. To calculate the Means Test, we look at your gross monthly income (before taxes) for the six months prior to your filing and compare it to the average household income in Alabama for families of your household size. If your gross income is above the state average, we then apply various deductions allowed by law to arrive at a current monthly income amount. If your current monthly income shows that you are still over the average family income, the bankruptcy court will not allow you to file for Chapter 7 bankruptcy. However, you will still be able to file a Chapter 13 bankruptcy. The attorneys at The Dansby Law Firm will be able to perform the Means Test calculations for you and explain what effect, if any, on a bankruptcy filing for you.
Proposed Repayment Plan for Chapter 13 Bankruptcy
After determining that you wish to proceed with a Chapter 13 bankruptcy, we will work with you to create a proposed repayment plan for your creditors. The repayment plan will enable you to pay a lower monthly payment for all of your bills. You must list all debts in your bankruptcy – the repayment plan tells the bankruptcy judge how you want to handle your debts in the bankruptcy.
To create this plan, we deduct all reasonable monthly expenses, such as mortgage or rent, food, clothing, transportation, and utility costs from your after-tax monthly income. From there, we take the amount left over and estimate how much you have to pay your creditors each month. Your bankruptcy attorney will help to determine how to divide the available funds among your creditors.
The bankruptcy court considers back child support payments and tax bills priority claims that you must pay in full. Typically, you can settle unsecured debts for only part of what you owe. This can be as little as 10 percent of the debt depending on the amounts due to creditors involved in your bankruptcy case.
Before a judge will approve your proposed repayment plan, it must pass the following three criteria:
- You must propose and deliver it in good faith.
- All unsecured creditors must receive at least as much as they would have if you had qualified for and filed Chapter 7 bankruptcy. This is generally the value of all non-exempt property you own. Alabama allows exemptions for your homestead, insurance proceeds such as life insurance or disability benefits, pensions, certain private property, public property, tools of trade, wages, and various personal property worth at least $7,500 but excluding life insurance.
- You must pay all disposable income toward the repayment plan for three years. You can take up to five years if you need that long to meet the second provision regarding unsecured creditors.
Once approved, the repayment plan payment is usually deducted from your pay check. If you do not receive a paycheck, such as social security, retirement, or disability, there are other methods to make your repayment plan payment. Your bankruptcy attorney from The Dansby Law Firm will help you make the appropriate arrangements with the court to pay your payment.
An automatic stay goes into effect once you have filed your bankruptcy paperwork and repayment plan with the court. The automatic stay forbids creditors from contacting you directly or attempting to repossess or foreclose on any property you own from the date of your filing and going forward. The automatic stay also stops lawsuits and garnishments.
Role of the Bankruptcy Trustee
A trustee from the bankruptcy court takes over the legal control of all property not covered under an Alabama exemption as well as your debts once you have filed for Chapter 13 bankruptcy. It is the trustee’s responsibility to ensure that your creditors receive as much money as possible. The trustee will review your assets and any exemptions that you claim and may challenge any aspect of your case. You will send your monthly plan payment to the trustee, and the trustee will pay your creditors for you.
This is another reason you should have an experienced bankruptcy attorney on your side. At The Dansby Law Firm, our attorneys will ensure that the bankruptcy trustee doesn’t pressure you into paying more than you can really afford.
341 Meeting of Creditors and Chapter 13 Plan Confirmation
A meeting of your creditors (court date) will be set for approximately 30 days after your filing. This meeting, named 341 after the section of bankruptcy code that describes it, typically only lasts for a few minutes. However, you are required to attend the meeting. It’s not mandatory for your creditors to attend, and there may be no creditors at your meeting of creditors. Those that do appear usually have a question about your debt or assets. Some may also question certain aspects of your repayment plan. A judge will only intervene if you and the creditor can’t reach an agreement.
Start the Process of Chapter 13 Bankruptcy Filing Today
The Dansby Law Firm understands that this is an extraordinarily stressful time in your life. However, ignoring your financial problems won’t make them go away. If you live in Montgomery, Alabama or the surrounding communities, we encourage you to contact us at 334-834-7001 as soon as possible. After reviewing your debts and assets, we will let you know if debt reorganization under Chapter 13 bankruptcy makes sense for your situation.