How much will you pay on credit cards and medical bills in Chapter 13?
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When consumers run behind on their bills, it can be stressful for many reasons. Living paycheck to paycheck, being unable to save, and dealing with debt collectors are all bothersome circumstances. If you’re also behind on your mortgage and car loan, the threat of foreclosure or repossession can make things worse. Fortunately, Wilmington bankruptcy might be a suitable tool to help get your finances back on track. If you choose Chapter 13 bankruptcy, you get on a repayment plan to catch up secured debt like your mortgage and vehicle loan and also get relief from your unsecured debt. But how much will you wind up paying on unsecured debt like credit cards and medical bills? Let's take a look.
Types of debt
When examining the potential outcome of a Chapter 13 bankruptcy, the categories of debt to consider are secured, priority, and unsecured debts. Secured debt is that which is attached to an asset. For instance, a mortgage is secured by the home and a car loan by the vehicle. Priority debts are those that you must pay, even though they’re not tied to collateral -- examples include child support, alimony, and certain income tax debts. Unsecured debts are those debts that are not secured by collateral such as credit cards and medical bills.
Paying debt in Chapter 13
Chapter 13 bankruptcy is a repayment plan designed to help you catch up on your debt and regain your financial footing. In Wilmington Chapter 13, you must pay all priority and secured debt, but not all your unsecured debt. The amount of unsecured debt you repay depends on your disposable income and a tenet of law called the “best interest of the creditors.” In your repayment plan, you must commit all disposable income to the repayment plan. Disposable income is what’s left after you pay living expenses, secured debts, and priority claims.
How is disposable income calculated?
As a big picture concept, calculating disposable income for Wilmington bankruptcy purposes starts with your income calculated as an average of your last six months of pay and other sources of income. From there, your living expenses are deducted, subject to certain limitations. After that, your income goes towards secured and priority creditors. The remainder is split among your unsecured creditors. If you earn more than the median income for North Carolina, calculating disposable income is a bit more complicated, but your lawyer will calculate it for you based on information you provide.
If your income is too low, your repayment plan likely won’t be approved by the court, and you might have to consider Chapter 7 instead for your Wilmington bankruptcy purposes. If you earn more than the median income for NC, you can deduct living expenses according to IRS limits, but these may not coincide with your actual out-of-pocket expenses to determine disposable income. Child support and alimony can also be deducted to for disposable income purposes. Your NC bankruptcy lawyer will calculate this for you and explain your options and the terms of your repayment plan.
What is the best interest of creditors?
In addition to your disposable income being a factor in how much unsecured debt you’ll pay, the “best interest of the creditors” also applies. This means that your unsecured creditors must be paid at least what they would have received had you filed Chapter 7 bankruptcy instead of Chapter 13. With Chapter 7, if you have no assets, your unsecured creditors would usually receive nothing. However, if you have assets not shielded by bankruptcy exemptions, you might pay some of your unsecured debt. This calculation determines what they will receive in Wilmington Chapter 13.
With Chapter 13, you may pay just pennies on the dollar on your unsecured debt or a more substantial portion. Wilmington bankruptcy is a process that gives you the debt relief you need while being fair to your creditors if you can afford to pay some towards your unsecured debt. To find out how much you will pay on your credit cards, medical bills, and more when you choose Chapter 13, schedule an appointment with a local well-reviewed bankruptcy attorney to discuss your debt.
Call +1-919-646-2654 now to reach the Law Offices of John T. Orcutt and set up a free Wilmington bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington. Get the debt relief you need!