You can file for Chapter 13 bankruptcy, but if your Plan doesn’t do what it needs to do then your case will fail.
If you’re thinking about Chapter 13 bankruptcy, you’re probably looking to deal with some debts that can’t be handled in a Chapter 7 bankruptcy.
Foreclosures, tax debts, car loans and other issues can be resolved in a Chapter 13 Plan, which is exactly why most people opt for that solution.
But if the Plan doesn’t meet the feasibility test, you’re not going to go very far.
Here’s what it means, and how to navigate the rocky waters of feasibility.
The Requirements Of Your Chapter 13 Plan
When you file for Chapter 13 bankruptcy, your Plan must provide for certain payments to be made to your creditors.
Those payments need to meet or exceed the amount they’d get if you were to file for Chapter 7 bankruptcy and have to sell some of your property.
Those payments must be enough to catch up on your arrears to secured creditors, and to repay your priority debts in full.
Those payments must be made – if they are, the Plan itself passes muster.
The Disconnect Of Your Financial Situation
If your Chapter 13 Plan must provide for payments of a certain amount of money each month for 60 months, you need to show that you’ve got enough money to make those payments.
Your income less your expenses must provide for the ability to fund your Plan.
If you can’t make the payments based on your own income and expenses, you’ve got a problem.
If you can make the payments but your expenses don’t seem realistic, you’ve got the same problem.
That problem, when given a legal name, is that your Plan does not meet the feasibility test.
Fix The Problem By Thinking Ahead
One way I fix the problem of not meeting the feasibility test is by attacking it before the bankruptcy case is filed.
Verify the income, verify the expenses, and make sure there’s enough left over for the Plan payments.
If there’s not enough left over, we’ve got a few options:
- make more money to increase your income;
- reduce some of your expenses; or
- find someone to contribute to your Chapter 13 Plan.
As to the first and second option, it’s often easier said than done. You can’t make more money by snapping your fingers, and some expenses simply won’t budge.
That’s usually why the third option is the winner. We get a spouse or parent to sign an affidavit indicating that they’ll contribute a certain amount of money per month towards the Plan payments, get some backup documentation, and we’re on the road to passing the feasibility test.
Is it easy? No. But if you want your Chapter 13 Plan to succeed, you’ve got to take matters into your own hands.
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