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Originally Posted by Ron Bennett
Under the new bankruptcy law, is there a time limit to how long one can be forced to pay back their debts?
I see 5 years mentioned a few places, but I think that's part of the "means" test and *not* a time limit on how long one can be required to pay back creditors - my impression is that there is no time limit - one could be forced to make payments for the rest of their life under the new bankruptcy law ... ?
Ron
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That isn?t part of the means test. 5 years will be the presumptive repayment period under the new Chapter 13 provisions.
After 5 years the creditors get whatever they are going to get, and your remaining non-secured debt is discharged. However that isn?t as good as it sounds. Even Chapter 13 plans under today?s more liberal rules fail in 80% of filed cases.
In a nutshell here is how it works:
1. You file Chapter 13
2. Your fill out a budget of your income and basic living expenses: rent, utilities, transportation ect.
3. Your attorney prepares a Chapter 13 repayment plant based on these expenses and your income
4. All money you make in excess of your basic living expenses goes to pay your creditors for the next 5 years. (you have no disposable income)
The real knock on Chapter 13 is that the budgets don?t allow for changing circumstances. For example say your plan calls for you to pay $1,000 a month to your creditors for the next 5 years based on your current income. If you loose your job two months into the plan it is tough shit for you as you still have to pay the $1,000 a month you agreed to. The same goes for if you get sick, get divorced, essentially anything that comes up it doesn?t matter you still have to pay the $1k per-month for the next 5 years. What inevitably ends up happing (even under current chapter 13) is some unexpected expense or unforeseen circumstance comes up and the debtor doesn?t make the required payment. The Chapter 13 Bankruptcy case is dismissed and the creditors go after them in state court leaving as their only option to file chapter 13 again using their new income/expense numbers. So in that sense it can be a never ending cycle. I?ll also point out with chapter 13 your bankruptcy isn?t over until you finish with your repayment plan. So if you?re forced into Chapter 13 you can?t start rebuilding your credit for 5 years as opposed to Chapter 7 where you can immediately begin to rebuild your credit.