The Percentage Of Debt That An Individual Repays In A Chapter 13

Interviewer: How much of the debt will the individual have to pay?

Michael Golub: A lot of that is going to depend upon what the income is and how much the debt is and also the assets. Let me kind of give you some examples here. Suppose you have a person that has a $1,000 a month mortgage and suppose they are $6,000 behind on the mortgage, six months behind and they have a car that is maybe $500 a month - I'll get into the car later; let's just talk about the mortgage. In terms of the mortgage, what they're going to do is in the plan, they're going to pay their normal mortgage payment to the trustee plus they're going to pay that $6,000 that they were behind suppose they do a 60 month plan, then they would have to catch that up within 60 months.

The Interest Rate on Cars Can be Significantly Lowered by Filing Bankruptcy

What we would do is just say that you're going to pay 1,000 and then you're going to pay another $100 a month to go towards the arrearage of this. The secured debts are those being a house, a car, something of that nature. The one thing that we can do on cars is we can lower the interest rate on those. Normally, the bankruptcy court only allows creditors an interest rate of about 5 ½ per cent. So, if you get somebody that comes in and they've got a 10, 15 per cent interest rate on their vehicle, we can immediately put them into the plan and lower that interest rate and usually lower the payment depending upon how much is owed on it. Normally they're going to pay 100 per cent of that. There are other circumstances in relation to those secured debts where if the loan is more than 910 days, there are a certain number of days.

If the Value of a Vehicle Deteriorates, then the Value Depreciated will be Considered Unsecured Debt

If it's a certain number of days old, we can do what's called a cram down on the vehicle. What that means is basically suppose you have a vehicle that you owe $20,000 on but you're upside down in it and the vehicle's only worth maybe 15,000. So, what we can do is then, we can basically value that vehicle at 15,000 and then you would only pay the 15,000 in the bankruptcy plan because the rest of it would be considered unsecured. The unsecured creditors are going to be things like credit cards, hospital bills, lawsuits, things of that nature. What happens is the person is going to pay a percentage of those unsecured creditors and the percentage that they pay is going to be determined by their income.

The Means Test is Utilized to Determine If an Individual Has Excess Income

The unsecured, basically they're going to pay a percentage and sometimes, they'll pay like 2 cents on the dollar and sometimes they'll pay a 100 per cent and it depends upon income and assets that a person has. Let's say a person has assets which exceed our exemption amount by $10,000, then that person will have to at least pay $10,000 into the plan for those assets over the course of the plan. There is a thing called a Means test that we do and basically, you plug-in your income, expenses and the standard living expenses for your size family in a certain area and the person would be either over or under a certain amount. If they're over a certain amount, they have what's called excess income and that excess income needs to be applied to the creditors.

If People Have a High Annual Income They'll Probably Repay a 100% of the Debt

It just depends upon how much is there and what their income is. There are a lot of people that'll pay 100 percent plan if their income's high enough.