Interviewer: What are the initial steps or the process? I mean where exactly does one start?
Brad Weil: You have to determine the amount of your debt, you have to determine the nature of your debt, you have to determine your income and you have to determine your expenses. Now, like I said, if you don’t have disposable income, if your expenses exceed your income, you won’t qualify for Chapter 13 because you won’t be able to afford the plan payments, you probably have to do a Chapter 7. And if you exceed the debt limits, then you aren’t going to be able to do a Chapter 13 because you don’t qualify, so you probably going to have to do a Chapter 11 and that gets expensive.
How does one exactly qualify for Chapter 13? What are some of the qualifying factors?
Brad Weil: The Chapter 13 has debt limits if you only have a certain amount of debt. And if you exceed the debt limit for a Chapter 13, then you do not qualify for Chapter 13. Now, currently, a debt limit for a Chapter 13, that is changed every 3 years based on the consumer price index, right now it’s $383,175 of unsecured debt, especially the credit card debt but that does include things like student loans. And $1,149,525 of secured debt, which is, mortgages, car loans, things of that nature, anything that’s secured by collateral. So, if you owe more than those amounts, you exceed the debt limit and you either have to do a Chapter 11 that you’re going to wish, or you have to do a Chapter 7 liquidation and that’s an individual determination. The other requirement is disposable income like we talked about. If you don’t have disposable income to make the plan payment, you don’t qualify.
There are some things that have to be paid back.
For instance, tax liability that’s less than 3 years old, it’s what we call priority tax liability. If you have priority tax liability, that has to be paid back. If you owe money on a vehicle and you want to pay it off through the plan, which I highly recommend, that vehicle had to be paid in full during the life of that plan. And so, some people can have very high plan payments, 400, 500. I talk to a gentleman today, I actually recommended placing his entire mortgage into a plan. He had a $100,000 mortgage and I said “You know what? If you put this $100,000 mortgage into this plan, your plan payment’s going to be less than your mortgage payment”. But his plan payment was going to be $1,200 a month. Now, his mortgage payment was $1,500 a month, so it would be in his best interest to do it that way. In theory, it could be a 0 per cent plan because he’s not paying any of his un-secured creditors. He’s only paying the mortgage and mortgage is considered as secured debt and even if you pay the mortgage in full for the plan, you can still have a high plan payment but a 0 per cent plan. That’s something that I like to try to do.
Interviewer: How much or what percentage of the debt will the individual have to pay?
Brad Weil: It all depends on the individual’s income and expenses. Like I said, the plan payment is based on disposable income. So, the first thing we have to determine is what is your disposable income? What is your average monthly income? What are your average monthly expenses? And how much money do you have leftover again in a month? Based on how much money you have left over again at a month, we can then determine how much you can afford to pay back.