If you’re thinking about filing Chapter 13 in New Jersey, you aren’t alone. Bankruptcy court statistics show that in 2016, more than 2,700 Chapter 13 bankruptcy cases were filed in Camden, plus more than 2,800 cases in Newark, in addition to over 3,100 cases in Trenton. Chapter 13 can help turn troubled finances around, but before you declare bankruptcy, it’s important that you’re aware of some key elements in the Chapter 13 process. One of the most important elements is the Chapter 13 debt repayment plan, which is also called a “reorganization plan.” Continue reading to hear Cherry Hill bankruptcy lawyers explain how the Chapter 13 plan is calculated when you file bankruptcy in New Jersey.
What is Chapter 13 Reorganization?
Chapter 13 is a form of bankruptcy that can be used by eligible individuals, married couples, and sole proprietors. You are generally eligible for Chapter 13 bankruptcy if your secured debts are under $1,184,200 and your unsecured debts are under $394,725. We’ll explain the difference between secured debts and unsecured debts in just a few moments, but first, let’s examine how Chapter 13 differs from Chapter 7.
Unlike Chapter 7 bankruptcy, which revolves around the liquidation of a debtor’s nonexempt assets and property, Chapter 13 bankruptcy is anchored by a reorganization plan, which is why Chapter 13 is sometimes called “reorganization bankruptcy.” So what does that mean for debtors in each type of bankruptcy?
In Chapter 7, a court-appointed trustee sells the debtor’s property to repay his or her creditors, unless the property is either:
- Not valuable enough to sell.
- Covered by bankruptcy exemptions, which are used to protect property and assets from sale by the Chapter 7 trustee. A Chapter 7 lawyer in Cherry Hill can help you choose exemptions strategically.
The proceeds from the sale help pay off the debtor’s debts, and when the process is completed, the bankruptcy court “discharges” (erases) certain debts, including medical debts and credit card debts.
In Chapter 13, the debtor retains his or her assets and property, including his or her home and vehicle. However, the debtor is also required to comply with a reorganization plan.
Under the reorganization plan, the debtor makes monthly payments to a court-appointed Chapter 13 trustee. The trustee then distributes the payments amongst the debtor’s creditors. When the plan is completed, the court discharges the debtor’s remaining dischargeable debts, freeing the debtor from further liability. More debts are dischargeable in Chapter 13 than in Chapter 7.
How is the Chapter 13 Debt Repayment Plan Calculated?
A Chapter 13 repayment plan may be structured to last for a duration of either three years (36 months) or five years (60 months). Throughout the plan, you will be required to put all disposable income toward your monthly payments. This requires discipline and consistency, but with careful planning, Chapter 13 allows debtors to save their homes from foreclosure, stop their cars from being repossessed, and pay back less than what they owe on certain debts.
You will be required to propose a repayment plan to the bankruptcy court within 14 days of the date you file for Chapter 13 bankruptcy. Your plan must be approved by the bankruptcy court. The bankruptcy court will not approve your plan unless it meets certain requirements. Certain debts are required to be paid in full, while other debts can be repaid in part. Therefore, your monthly payments will depend on:
- How much debt you owe.
- The types of debts you owe.
- The duration of your Chapter 13 plan.
Debts that must be paid in full in Chapter 13 are called “secured debts,” because they are secured by collateral. If you do not pay these debts in full with interest, the trustee can seize the collateral, such as your car or your home.
If you wish to keep your vehicle, or your real property, your plan must allow for full payment with interest over the course of 36 to 60 months, depending on the duration of your plan. For example, if a hypothetical secured debt of $10,000 (including interest) was spread over a 36-month plan, the minimum monthly payment would be about $277. In a 60-month plan, the minimum monthly payment would be closer to $166.
“Unsecured priority claims” are debts that, while not secured by collateral, have still been given priority status under the U.S. Bankruptcy Code. Like secured debts, unsecured priority debts are typically required to be paid in full. Alimony payments, child support payments, and recent income tax debts are all examples of unsecured priority debts.
If a debt is not secured or priority, it is a “general unsecured claim.” General unsecured debts are the least pressing and receive the lowest priority. The debtor pays to the greatest extent possible, but full repayment is not necessarily required. In fact, many debtors pay back only a small portion of their general unsecured debts. However, creditors with general unsecured claims do need to receive at least the amount they would have received if the debtor had filed for Chapter 7 instead of Chapter 13.
Your plan may be shortened to 36 months if your income is below median. If your income is above the median, you may be required to use a 60-month plan.
Cherry Hill Chapter 13 Bankruptcy Law Firm
Chapter 13 bankruptcy can help you catch up on delinquent payments, giving you a priceless opportunity to stop foreclosure and save your home. At the same time, Chapter 13 also enables you to pay a reduced amount on many of your debts. For the right debtor, Chapter 13 bankruptcy can be highly beneficial. To learn more about filing Chapter 13 in New Jersey, call the Cherry Hill Chapter 13 bankruptcy attorneys of Sadek and Cooper Law Offices, LLC at (856) 354-3310 for a free legal consultation.