Austin Bankruptcy Lawyers Cantu and Hickson, P.C.
The New Bankruptcy Law.
Chapter 13 under the new law
Chapter 13 debtors who earn less than the state median income will not be affected much under the new law and the amount they pay will be basically unchanged to the old bankruptcy laws. For debtors whose income is below the median income the following applies:
Chapter 13 is known as the Wage Earner Plan. It allows an individual to reorganize and consolidate all of his/her debts by putting together a plan specifying how creditors will be treated.*
The debtor is allowed to retain his/her assets but must pay his/her creditors pursuant to the terms as set in a plan, meeting the requirements under title 11 of the United States Bankruptcy Code.
The plan provides for a monthly payment to a trustee who administers the funds and disburses payments to the creditors. How much is paid monthly is determined by one's disposable income, how much is owed and the type of debt involved. Chapter 13 does not always require that a person pay the creditors in full. A plan can be approved by the court even if it only proposes to repay a few cents on the dollar.
There are two requirements for approval of a plan:
- All income left over after living expenses, known as disposable income, must be paid into the plan.
- The plan must meet the liquidity test requiring that creditors be paid no less than they would have received had the case been one under Chapter 7.
This means that in a no-asset case, a person will be making a payment he can afford without losing his/her exempt property. For example, a person with 10 credit cards, each with balances of $3,000.00 and monthly payments of $100.00, a car loan with a balance of $10,000.00 and a payment of $280.00 monthly, and this car was valued at $7,500.00. This person is behind on all payments including three house payments of $650.00 each and is now facing repossession and foreclosure. This person was paying $1,280.00 a month on the credit cards and the car loan. This same person could reorganize this debt under a Chapter 13 Plan and pay as little as $290.00 a month. He would also be able to stop the repossession of the car and the foreclosure on the house by paying the past due house payments under the plan.
Please be advised that this is solely for informational purposes and is not intended as legal advice. You are advised to consult an attorney.
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