Chapter 13 Payments After New Bankruptcy Laws

Radical changes in new bankruptcy laws increase Chapter 13 payments

The new bankruptcy laws, as proposed, adopted IRS monthly living allowances originally applied to convictions for tax evasion. Under this standard proposed by new bankruptcy laws, a couple each earning minimum wage, without dependants, is allowed $716 per month for expenses based on gross earnings (not including home purchase/rental). Assuming they find a mortgage or rental for $500 per month and pay FICA taxes, they are deemed to have excess monthly earnings of $411 per month which must be applied to taxes and criminal penalties. Conforming to the IRS monthly allowances provided by new bankruptcy laws, this couple would be limited to a total of $1216 per month expenses until all taxes, penalties, fines and court costs are repaid without debt relief of any kind. If they later pay less for home costs, their excess income is applied to IRS obligations as well.

What if this couple filed Chapter 13 Today?

Same result. Individuals in Chapter 13 cases under new bankruptcy laws must repay creditors under the same standard used to prosecute tax evasion - for a minimum of 5 years - with 25% of their income applied to the plan in this example when earning above median income for their state. Actual ability to repay is considered irrelevant which is a major departure from traditional court practices. Be aware, one proposed amendment recommended a 7 year minimum plan if necessary to pay 100% of all principal and all unearned interest at the contractual rate (such as credit card agreements) up to 34% APR.