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How are monthly payments determined in Chapter 13 bankruptcy?

Many people are aware that there are different types of bankruptcy filings available for individuals carrying unmanageable debt. Not many people are aware of what their options are, though, until they start looking into filing for bankruptcy themselves.

Under the United States Bankruptcy Code, there are two major forms of personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy. These two forms of bankruptcy have different goals and different requirements, and those thinking about filing should consult an experienced attorney have their situation evaluated in order to determine, first of all, whether filing for bankruptcy is appropriate, and second of all, which form of bankruptcy best suits their needs. 

In Chapter 13 bankruptcy, the goal is for the debtor to come up with a three to five year repayment plan to pay back creditors. Payments under the plan are made to the court, which in turn pays the creditors according to established rules. In order to determine the debtor's payments, the court needs to know the debtor’s disposable income.

Disposable income is determined by Form 22C, which details the sources and amounts of the debtor’s income. Filling out Form 22C may be fairly straightforward for many debtors, but sometimes issues can arise. When they do, the bankruptcy court has to determine how to resolve the issue. One of the reasons it is important to work with an experienced legal advocate in the bankruptcy process is that a debtor can benefit from having guidance from someone who understands the issues that can arise when it comes to reporting income.

In our next post, we’ll continue looking at this issue.

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