One reason that people get into trouble with debt is the exorbitant interest rate found on, for example, some credit cards. If the interest rate on the only credit card someone can qualify for is 20 or 30 percent, it’s easy to end up making minimum payments and reducing the principal balance by barely a few dollars a month. That basically means the debt will never be paid off. Hence the need to file for bankruptcy.
One key advantage of filing bankruptcy is that — when you pay your debts back through Chapter 13 — you don’t pay any interest on unsecured debts. You simply develop a plan to pay back the actual amount you owe at the time you file for bankruptcy.
There are nuances to the period of time you’re allowed to pay back your debt. In Chapter 13 bankruptcy, the minimum timetable is three years, and the maximum is five years. There is an exception for “100 percent plans” — which means you’re proposing to pay all of your creditors through the plan. In that case, you could propose a two-year plan.
Normally, though, count on the plan being in the three- to five-year range. If you’re proposing to pay off less than 100 percent of your debt, then it gets additionally complicated. By that, we mean that you have the option of proposing to pay, for example, 50 cents on the dollar of your debt. If everyone agrees to that plan, then the minimum plan is three years.
Another twist concerns your income relative to the median income in California. If you’re above the median income, you’re required to propose a five-year plan. As you can see, there are a lot of moving parts when it comes to proposing the best plan to get back on your feet. Give us a call — we can help you develop the best plan for your particular situation.