Chapter 13 Bankruptcy Explained

Legal summary and tips - Chapter 13 bankruptcy explained for debtors

Payments in Chapter 13 bankruptcy, explained by the Code, include all "disposable income" calculated as "the debtor's total income" less the amount of authorized living expenses established by the court. The term "disposable income" is a statutory term, and is subject to the "means testing" requirement. Because of the relatively new imposition of means testing in all cases, creative interpretation of income and exception promises a wide latitude in case law interpretations and applications.

In the past in Chapter 13 bankruptcy, necessity for monthly expenses was determined in the sole discretion of the sitting judge, that is, the judge assigned to preside over a specific case. For example, one judge could have considered $200 per month, per person food allowance reasonable and necessary, while another judge may have allowed only $150. In larger Federal Districts, 2 to 10 US bankruptcy judges may be assigned to one federal courthouse. The random nature of case assignments among local judges resulted in unexplained variations in Chapter 13 bankruptcy plan confirmation procedures. The result was that the calculation of acceptable proposed plan payments was an art rather than science, and was based on familiarity with preferences of local judges.

Today, all debtors are now presumed to have exactly the same needs, despite disability, capability, driving distance to work, variations in physical and career oriented needs. A single schedule of monthly expenses is now mandatory, and judges no long are allowed to balance needs and necessities on a case by case basis. The amount of living expenses allowed presume, as a starting point, that minimum wage provides sufficient income to pay reasonable living expenses and pay the excessive portion of remaining income to creditors.

In practice - Chapter 13 bankruptcy explained

To receive confirmation of a Chapter 13 bankruptcy plan, the Trustee's recommendation carries the greatest weight. Trustees are intimately familiar with the preferences of local judges, and will probably indicate in advance if they are willing to recommend confirmation. Should there be any doubt whatsoever, prudent practice requires debtors or their attorneys to call the trustees office before the confirmation hearing and discuss plan payments and the trustees expected recommendation.