Bankruptcy

How are Chapter 13 Payments Determined?

By info

Consumers who file for bankruptcy under Chapter 13 are in a unique position with respect to their debts and how much of those debts get paid. Under a Chapter 13 bankruptcy case, the Debtor is proposing to reorganize his or her finances and to pay back not only missed payments on mortgages, cars loans, and taxes, but also a portion to unsecured creditors. In the past that amount has been based upon the disposable income of the person filing for bankruptcy. However, in making that determination, certain allowances are used to decide how much someone is allowed to spend. In addition, the amount of money one is believed to make each month was not based upon their current situation as much as it was based upon their income over the last six months.Recently, the United States Supreme Court had the opportunity to issue a ruling relative to the plan payment and how to determine a person?s true disposable income?. The Court held that ?when a bankruptcy court calculates a Debtor?s projected disposable income, the court may account for changes in the debtor?s income or expenses ?that are known or virtually certain at the time? their plan payments is confirmed by the court. This is important because a person who may receive a lump sum payment or bonus could conceivably be required to may much more money each month then they really earn. Equally important, a person who earned a large salary, but whose income is about to be reduced, need to suffer due to the fact that their income was at one point in time higher then it is on the day they file, or even higher then anticipated over the next few months.

In the case of Hamilton v. Lanning, 545 F. 3d 1269 (2010), the court held that taking the forward-looking approach should begin by calculating disposable income, and in most cases, nothing more is required?, but the court can take into account other known or virtually certain information about the Debtor?s future income or expenses.?

What this all boils down to is that when deciding if bankruptcy is the right option, Debtors now have a guideline that they can point to in working with the Trustee and the Court to somewhat accurately anticipate their Chapter 13 Plan.

Full post as published by Bankruptcy Articles & Blog on June 23, 2010 (boomark / email).