How does a Chapter 13 Bankruptcy in Utah work?

Under the economic situation, many people are finding it difficult to make their financial income and expense ends meet. One way to avoid liquidation of assets in a chapter 7 bankruptcy in Utah is to file for protection under a Chapter 13 bankruptcy.

Chapter 13 bankruptcy in Utah is essentially a monthly repayment plan under the protection of the bankruptcy court. The payment amount is based on the debtor’s ability to pay and theoretically could be as little as $50 per month. Here’s how it generally works.

All of the debtor’s income is added up. Reasonable and necessary living expenses are then subtracted. The net amount is then paid to the bankruptcy trustee (neutral appointee of the court) who in turn distributes it to the creditors on a priority and pro rata basis.

Reasonable and necessary living expenses do not include your credit card payments, delinquent medical bills, past due car or mortgage payments and so forth. However, it does include current expenses for gas, groceries, utilities, car and mortgage payments, insurance, and so forth. In essence, the debtor proposes a reasonable budget to the court, seeking the bankruptcy trustee’s approval. The trustee has the power to object to any expenses, claiming they are too high or unnecessary altogether. The debtor’s attorney and trustee then argue about whether that’s the case, and if necessary going to court and letting the judge decide. The trustee may object to an expense item of $500 per month for cheerleading lessons, or $750 per month for lease payments on the debtor’s recently acquired luxury sedan. The guiding principal is “reasonable and necessary”. The proposed budget is one item among many that comprise an overall repayment plan, which the debtor submits to the court.

Benefits of a chapter 13 bankruptcy in Utah

Upon obtaining approval of the repayment plan, the debtor makes monthly payments to the trustee, usually for a period of 3-5 years. As mentioned above, the trustee then distributes the payment among the creditors on a priority and pro rata basis. Because certain creditors get paid first, the plan usually nets literally pennies on the dollar to unsecured creditors who get paid last, i.e. credit card companies and medical providers. Additionally, under the plan, if the debtor is upside down in a vehicle, she may be able to reduce the principal amount of the vehicle loan to the current fair market value of the vehicle, often saving thousands of dollars. Overall, the debtor will generally pay much less than the original amount owed, making chapter 13 bankruptcy far more powerful and effective (and less expensive) than the all-too popular, so-called debt management plans. If the debtor successfully makes all payments required under the chapter 13 plan, any remaining unpaid debt is discharged—the legal obligation to repay is extinguished. The debtor now begins a fresh financial start.

Contact a Utah chapter 13 attorney today

If you have any further questions or want to find out if this might be right for you, contact us today by phone or using the online form to the right and our lead Utah bankruptcy attorney will get right back to you for a free evaluation. A chapter 13 bankruptcy in Utah might be the best thing for your situation.