Roseville Bankruptcy: Ch. 13 Factors for Determining Which Creditors Will Be Paid

Chapter 13 Factors for Determining Which Creditors Will Be Paid

Several factors determine which unsecured creditors are paid in a Chapter 13 filing.  The first most important factor is how much of your monthly income can be devoted to paying off debt as opposed to monthly living expenses.  Chapter 13 rules say that any excess income after paying for necessities of life must go to creditors.  After the life of the plan, three to five years, any unsecured debt which has not been paid is then discharged.

Secondly, the total value of your assets affects how much your payout must be under a Chapter 13 plan.  A Chapter 13 filing must give creditors at minimum the amount they would receive if the same case was instead filed as a Chapter 7.  What this means to you, is that since non-exempt property which could be sold in Chapter 7 would go to unsecured creditors, the Chapter 13 plan must also pay creditors this amount at a minimum.

The third factor which most commonly affects payouts to unsecured creditors is the “means test.”  Averaging your gross income over six months and subtracting out expenses for your home and car and taxes, this number is compared to the median income of families in California.  Anytime your income is more than the median, you must pay out to creditors according to a schedule determined by this means test.  Despite monthly budgets this test will control your total payments to the payment plan and, consequently, the amounts paid to unsecured creditors.

The bottom line is that even though Chapter 13 is a reorganization and repayment plan this doesn’t mean that you must pay all the debt back.  To learn more about Chapter 13 and whether it fits your unique situation, contact Sagaria Law of Roseville today for consultation.

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