It's commonly believed the bankruptcy court only looks at a person's income when determining whether to approve their chapter 13 bankruptcy plan and how much they'll pay every month. However, that's not entirely accurate. The court also factors in the value of any non-exempt assets they have. Here's more information about this issue.
Making Creditors Whole
Although the goal of bankruptcy is to eliminate your debt, the court also wants to be fair to your creditors and make sure they get paid some money from any cash reserves and assets you may have. In a chapter 7 bankruptcy, any non-exempt assets would be liquidated and the money distributed to as many creditors as possible.
With a chapter 13 bankruptcy, however, you get to keep your assets. So, instead of selling non-exempt property, the court will use its value to calculate how much should be paid out. The idea is that creditors should receive as much as they would have if you'd filed chapter 7 bankruptcy.
For instance, say you own a recreational vehicle valued at $15,000. In a chapter 7, the trustee would sell it and pay creditors using the money. However, since you get to keep the vehicle in a chapter 13, you would be required to pay your creditors that $15,000 through your payment plan over the 3 to 5 year time period.
As you can imagine, this can be a problem if you own high-dollar assets, such as a paid-off home or jewelry valued in the hundreds of thousands of dollars. If you don't have enough disposable income to cover the value of those assets, your plan may be denied.
Dealing with High-Value Assets
It may be challenging getting your plan approved when you have high-dollar assets and too little income. You can use exemptions to reduce the property's value. For instance, if you own a $50,000 mobile home, you can use the federal bankruptcy exemption to retain $25,150 of the value and only have to pay $24,850 into your plan.
The asset's value may be further reduced if you own it with other people. You and your spouse are co-owners of your car, so the court would only factor in your financial interest in the vehicle. If the car is worth $20,000 and your share of the marital property is 50 percent, you would only have to worry about paying $10,000 into your chapter 13 plan, for instance.
There may be other ways to mitigate the effect assets have on your chapter 13 bankruptcy filing. Contact a bankruptcy attorney for advice and assistance.Share