Chapter 13 bankruptcy, or reorganization bankruptcy, is an excellent way to get relief from your financial struggles even if you still earn a good wage. However, one of the biggest hurdles that you will face is drafting a repayment plan and getting it approved by the bankruptcy trustee. To help you find success with this step, here are the three main questions the trustee must use to gauge whether or not to approve.
1. Is It Feasible?
This question is about your ability to successfully make the payments for the entire period of the bankruptcy. The plan must allow you to meet basic living requirements and be sustainable. So this isn't a time to get too ambitious, especially if your finances may change during the multi-year period.
If there is a danger that it's not a sustainable payment plan, use the full five-year term offered through bankruptcy to reduce monthly payments. Your attorney can also help you be realistic about your finances and needs using their years of experience with clients.
2. Is It In Good Faith?
Because the debtor crafts their own repayment plan, there is always a danger that they will take advantage of this process.
Presenting a repayment plan that is too low may be good for the debtor but bad for their creditors. And the trustee must work in the best interests of both you and your creditors. So they expect to see a debtor making a good faith effort to balance everyone's interests, make compromises, and make adjustments as requested. Be that debtor.
3. Is It In Compliance?
The trustee is responsible for ensuring your case follows bankruptcy law. You must meet deadlines, provide accurate documents, and design a payment plan that fits the goals of bankruptcy. One of the biggest concerns for the trustee will be the requirement that creditors receive at least the amount they would have if their assets had been liquidated.
Make sure you comply with this by calculating your exempt and non-exempt assets and your payment plan's final total. If it may not pass the compliance test, consider using the longer payment period to boost overall repayment.
Where Can You Learn More?
These questions seem simple on their surface, but they are deceptively complicated. Failure to meet these tests will delay your bankruptcy and may frustrate the trustee who is in charge of the case. It could even eventually result in your case being terminated. So get help writing a good payment plan. Meet with a Chapter 13 bankruptcy attorney in your state for more info.