When people come to see me at my Asheville NC office, and are behind on their mortgage or car payments, one option we will discuss is a Chapter 13 bankruptcy (we’ll also talk about Chapter 7). We can reduce your monthly expenses in Chapter 13 by paying your ‘disposable income’ to creditors in a repayment plan.
Disposable income can be tricky to calculate. First, we start with your ‘Current Monthly Income,’ which is basically the average gross income for your household during the previous 6 months before filing. We then adjust these numbers for any changes up or down in the future.
Next, we subtract the expenses you have which are reasonable and necessary for the maintenance of your household. There are two major categories here: amounts you are spending (groceries, mortgage, car payment, power bill, etc.) and amounts you should be spending (car repair, dental work, home repair, life insurance, 401(k), etc.).
The trustee evaluates the reasonableness of our expenses, looking for places where there may be extra money for unsecured creditors. Our job is to explain in detail why these expenses are necessary. For example, a grocery budget of $1000/month may be too much for a family of 2 usually, but if one family member has special dietary restrictions, those expenses may be warranted.
Our Plan is required to pay off certain debts such as the amounts you are behind on your mortgage or car payments. For example, if you are behind 6 payments on your $1000 mortgage, we would need to provide for the $6,000 in some way (usually, we would spread this out over 60 payments or $100/month). We also need to pay most back taxes in full.
Lastly, we must be sure that our Plan is in the “best interest of the creditors.” This means that the creditors receive as much in Chapter 13 as they would have in Chapter 7.
For those of you in Western North Carolina, I would be happy to evaluate your situation during a free, initial consultation either in person or over the telephone.
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