Interviewer: How long could the whole process of Chapter 13 last? How long is it supposed to last and could it be extended?
Brad Weil: By law, the minimum bankruptcy plan in Chapter 13 that you can propose is a 3-year plan, 36 months. The maximum bankruptcy plan that you can propose is a 5-year plan, 60 months. If you are paying all of your creditors through the plan, what we call a 100 percent plan, you can propose less than a 3-year plan. We’ve done a 2-year plan for people just to pay back their debts. And the reason for doing that is when you pay your debts back through Chapter 13, you don’t pay any interest on unsecured debts. It’s whatever you owe as it has been filed. And some people, all they can afford is the minimum payment on their credit card, which is like 20 or 30 percent interest that has been maxed out a year ago. And they’re not getting anywhere; they’re just constantly paying like a dollar or two of those interest.
When you file that bankruptcy, that stops a call of interest and you just pay what you are liable to do the filing and you can pay that off over a 5 year period. So, then you know that what the trustee is paying on that debt goes to principal and it’s paid off in 5 years or in 2 years or 3 years or whatever and you’re done. Now, if you’re proposing a less than 100 percent plan, which means you’re not going to pay all of your creditors anything that you owe, you’re going to pay, say, 50 cents on the dollar. Then, the minimum plan you can propose is a 3-year plan. And if you’re, what we call, an above-median debtor, which means your income is about median income for your stay, then you have to propose a 5-year plan, they won’t let you propose a 3-year plan.
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. As 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 leftover again at a month, we can then determine how much you can afford to pay back.
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 a 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 percent plan because he’s not paying any of his unsecured creditors. He’s only paying the mortgage, and the 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 percent plan. That’s something that I like to try to do.