Understanding Your Repayment Obligations

When you file for Chapter 7 bankruptcy, most of your debts are discharged after you have repaid as much as possible through the sale of your assets. With Chapter 13 bankruptcy, the picture is different. You get to retain most, if not all, of your assets, but you must make payments on your debts as ordered by the court. Your repayment obligations are set according to what is legally referred to as your best effort to pay. Here is a look at how your best effort is determined and what you need to know about maintaining those payments.

What is the best effort requirement?

The court determines your best effort payments using a form called the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income, or Form 22C. This form is similar to the form used to qualify for Chapter 7 bankruptcy and used to determine your ability to pay unsecured, non-priority debts, like credit cards. On the form, you must report your past six months of income. If your income average is below the median income in your state, you may not have to pay anything on unsecured, non-priority debts. If it is above the median income, the court will determine your disposable income—the amount left over after you pay your bills—and multiple it by 60. That figure is the amount you have to pay to unsecured, non-priority creditors during the five years of your Chapter 13 bankruptcy.

What are priority and non-priority debts?

Priority debts are those that must be paid 100%, including your filing fee, your trustee and attorney feed, child support, alimony, taxes, and salaries or benefits you owe to employees. Your mortgage is a priority debt if you want to keep your house. Non-priority debts are other debts not secured by collateral, including credit card payments and medical bills.

What happens if I default on payments?

Missing payments can cancel your bankruptcy protection. If your financial situation changes, contact your bankruptcy attorney as soon as possible before you default on your agreement and jeopardize your case.

Cutler & Associates, Ltd. is here to walk you through the entire bankruptcy process, from qualifying to maintaining your payment agreement.