Reducing monthly payments

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Updated: 4/13/2007 3:35 pm
A Chapter 13 bankruptcy is designed to help you satisfy your financial obligations by allowing you to refinance and consolidate your debts into one affordable monthly payment. Your monthly payment will usually be much lower than the sum of your individual account obligations because a Chapter 13 filing immediately stops interest charges on most of your debts from accruing throughout the duration of your repayment plan. Furthermore, there will be some debts that you can pay back partially, lowering your monthly payments even further. To calculate the amount of your monthly payments and to determine which debts can be paid back partially, the trustee will take into account your expected monthly income. Income can come from wages, commissions, child support, alimony, Social Security, and other benefits. Once your monthly income is determined, the amount you need for monthly living expenses is subtracted, leaving you with the maximum amount you have available to pay your debts. A portion of that amount will be used to pay back certain tax obligations and debts secured by collateral in full. Most unsecured debts, as mentioned earlier, can be paid back partially and oftentimes without interest. These debts can include credit card accounts, medical bills, and signature loans but not alimony, child support, or most student loans. Generally, if your income gives you the ability to pay back all your debts in full, you’ll be obligated to do so. Your monthly payments, however, will most likely still be lower than what you’re used to paying. In the event that you’re unable to make your monthly payments in a Chapter 13 plan because of injury, job loss, or other unavoidable circumstances, you can ask the court to modify your repayment plan temporarily to achieve even lower monthly payments. Keep in mind, however, that if it’s unlikely that you’ll be able to resume full payments in the future, your Chapter 13 case may be dismissed or converted to a Chapter 7 bankruptcy.

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