Determining the amount of a bankruptcy payment depends on the type of bankruptcy the debtor files and the unique financial circumstances of the debtor. In the U.S., for example, a debtor might be eligible to file a bankruptcy under Chapter 7, Chapter 11, Chapter 12, or Chapter 13 of the bankruptcy code. Each chapter has different eligibility requirements. A bankruptcy lawyer can help a client select the appropriate chapter.
Calculating the amount of a bankruptcy payment is relevant for a Chapter 13 bankruptcy because it requires a debtor to make a monthly bankruptcy payment to a bankruptcy trustee. Appointed by a judge, a bankruptcy trustee is responsible for ensuring that a debtor — also called a petitioner after the bankruptcy paperwork is filed with the court — complies with the bankruptcy laws.
Under a Chapter 13 bankruptcy, a debtor sets up a court-approved reorganization plan to repay certain debts. A bankruptcy lawyer can advise a debtor on how to structure a plan that a trustee is likely to approve. If the trustee approves the plan, the petitioner must make a monthly bankruptcy payment to the trustee. The trustee then takes the bankruptcy payment and divides it among the various creditors identified in the plan.
The monthly bankruptcy payment is determined by calculating the petitioner’s regular and disposable income. Regular income includes wages, retirement, bonuses, and any other money from all sources. Disposable income is the amount of money remaining after the petitioner subtracts certain eligible expenses including food, utilities, and any other costs permitted under the bankruptcy law.
The type and the amount of debt will also affect how a bankruptcy payment is determined. For example, if a petitioner owes money for back taxes, alimony, or child support, the law will require the petitioner to pay these debts in full. The law classifies these types of debts as a priority.
Another factor affecting the bankruptcy payment is the duration of payment plan. The bankruptcy code establishes a three-year minimum and a five-year maximum. This means that petitioner must satisfy the repayment obligation no later than five years after the trustee approves a plan.
The bankruptcy code presents a debtor with several bankruptcy options. Each option has unique requirements that a person must satisfy to qualify for bankruptcy protection. A bankruptcy attorney can help a debtor understand the bankruptcy laws. The lawyer can also offer advice on setting up a payment plan to satisfy the debts that the law requires to be repaid.