I Make Too Much for Chapter 7. Is Chapter 13 Worth It?

One of the biggest misperceptions surrounding Chapter 13 Bankruptcies is that it requires you to repay all your debt. This is not entirely true. While chapter 13 bankruptcy does require you to make monthly payments, the amount of your monthly payments has very little to do with your debt level, but rather, what you can realistically afford to pay.

Disposable Income Vs. Allowable Expenses

It is based on your disposable income--that is the difference between your net income and allowable expenses. This means it is possible to have $200,000 in debt and make monthly payments of only $150 for 60 months. This means you would only pay about 4.5% of your debt level. Is that worth it? Of course it is.

The key to remember is that your monthly payments are based on your disposable income, not your debt level. Of course everyone's circumstances vary but this simple example highlights the possibilities and should make you realize that exploring a Chapter 13 is a critical part of your financial planning.

Minimizing Your Monthly Payments

The key to maximizing the benefit of a 13 is knowing how to minimize your monthly payments. This requires a strong understanding of how the process works and how the local trustee works. In a very real sense a Chapter 13 is part art form, part financial strategy, part legal expertise and part salesmanship.

Some of the tactics that can be used to minimize your payments include getting life insurance, increasing health insurance, increasing 401K contributions, and even buying a new car... That's right sometimes it makes sense to buy a new car prior to filing a Chapter 13.

Clearly, there are a host of strategies that one can employ to minimize your payments, making consulting an attorney critical. So, is a Chapter 13 worth it? Usually, very much so. A good attorney can help you see how.