Chapter 7 Bankruptcy

This information comes from our friends at Nolo Press. For more information or to order this book, visit Nolo's site at http://www.nolo.com.

Americans learn almost from birth that it's a good thing to buy all sorts of goods and services. A highly paid army of persuaders surrounds us with thousands of seductive messages each day that all say "buy, buy, buy." Easily available credit makes living beyond one's means easy and resisting the siren sounds of the advertisers difficult. But we're also told that if we fail to pay for it all right on time, we're miserable deadbeats. In short, much of American economic life is built on a contradiction.

If for some reason, such as illness, loss of work or just plain bad planning, our ability to pay for the goods or services we need is interrupted, fear and guilt are often our first feelings. We may even feel we've fundamentally failed as human beings.

Nonsense. There's lots more to life than an A+ credit rating, and lots of better things to feel guilty about than the failure to pay for a snowmobile or a summer vacation on time. The importance we have for our families, friends and neighbors should never be forgotten. Nor should the fact that the American economy is based on consumer debt. In the age of $50 billion bailouts for poorly managed financial institutions, you really shouldn't feel too guilt-ridden about the debts you've run up. Remember that large creditors expect defaults and bankruptcies and treat them as a cost of doing business. The reason so many banks issue credit card is that it is a very profitable business, even with so many bankruptcies.

Fortunately, for thousands of years it's been recognized that debts can get the better of even the most conscientious among us. From Biblical times to the present, sane societies have discouraged debtors from falling on their swords and have provided sensible ways for debt-oppressed people to start new economic lives. In the United States, this is done through bankruptcy.

Bankruptcy is a truly worthy part of our legal system, based as it is on forgiveness rather than retribution. Certainly, it helps keep families together, reduces suicide and keeps the ranks of the homeless from growing even larger.

If you suddenly find yourself without a job, socked with huge, unexpected medical bills you can't pay or simply snowed under by an impossible debt burden, bankruptcy provides a chance for a fresh start and a renewed positive outlook on life.

Bankruptcy can also have its down sides-economically, emotionally and in terms of your future credit rating. So before you race into bankruptcy court, take some time to understand what bankruptcy is all about and what your alternatives are.

An Overview of Chapter 7 Bankruptcy

Chapter 7 bankruptcy refers to the chapter of the federal statutes (the Bankruptcy Code) that contains the bankruptcy law. Chapter 7 bankruptcy is sometimes called "straight" bankruptcy. This bankruptcy cancels most of your debts; in exchange, you might have to surrender some of your property.

The whole Chapter 7 bankruptcy process takes about three to six months, costs $170 in filing and administrative fees, and commonly requires only one trip to the courthouse.

To file for bankruptcy, you fill out a two-page petition and several other forms. Then you file the petition and forms with the bankruptcy court in your area. Basically, the forms ask you to describe:

• your property
• your current income and its sources
• your current monthly living expenses
• your debts
• property you claim the law allows you to keep through the bankruptcy process (exempt property--most states let you keep clothing, household furnishings, Social Security payments you haven't spent and other basic items)
• property you owned and money you spent during the previous two years, and
• property you sold or gave away during the previous two years.

Filing for bankruptcy puts into effect something called the "automatic stay." The automatic stay immediately stops your creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally grab (garnish) your wages, empty your bank account, go after your car, house or other property, or cut off your utility service or welfare benefits.

Until your bankruptcy case ends, your financial problems are in the hands of the bankruptcy court. It assumes legal control of the property you own (except your exempt property, which is yours to keep) and the debts you owe as of the date you file. Nothing can be sold or paid without the court's consent. You have control, however, with a few exceptions, of property and income you acquire after you file for bankruptcy.

The court exercises its control through a court-appointed person called a "bankruptcy trustee." The trustee is mostly interested in what you own and what property you claim as exempt. This is because the trustee's primary duty is to see that your creditors are paid as much as possible on what you owe them. And the more assets the trustee recovers for creditors, the more the trustee is paid.

The trustee goes through the papers you file and asks you questions at a short hearing, called the "creditors' meeting," which you must attend. This meeting is not likely to last more than five minutes. Creditors may attend, too, but rarely do.

After this meeting, the trustee collects the property that can be taken from you (your nonexempt property) to be sold to pay your creditors. You can surrender the property to the trustee, pay the trustee its fair market value or, if the trustee agrees, swap some exempt property of equal value for the nonexempt property. If the property isn't worth very much or would be cumbersome for the trustee to sell, the trustee can "abandon" the property-which means that you get to keep it. Very few people actually lose property in bankruptcy.

If you've pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses and motor vehicles. In most cases, you'll either have to surrender the collateral to the creditor or make arrangements to pay for it during or after bankruptcy. If a creditor has recorded a lien against your property, that debt is also secured. You may be able to wipe out the lien in bankruptcy.

If, after you file for bankruptcy, you change your mind, you can ask the court to dismiss your case. As a general rule, a court will dismiss a Chapter 7 bankruptcy case as long as the dismissal won't harm the creditors. Usually, you can file again if you want to, although you may have to wait 180 days.

At the end of the bankruptcy process, most of your debts are wiped out (discharged) by the court. You no longer legally owe your creditors. You can't file for Chapter 7 bankruptcy again for another six years from the date of your filing.

When Chapter 7 Bankruptcy May Not Help You

1. You Previously Received a Bankruptcy Discharge

Chapter 13 bankruptcy has no such restriction; you can file for it at any time. So if you are barred from filing Chapter 7, and you want to file for bankruptcy quickly (for instance, to stop creditors' collection efforts), Chapter 13 may be an option.

Also, you cannot file for Chapter 7 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because:

• you violated a court order, or
• you requested the dismissal after a creditor asked for relief from the automatic stay.

2. You Want to Stop Bill Collector Abuse and Harassment

Creditors collecting their own debts (except those that create their own collection agencies and operate them under a different name) are not governed by this law. While they cannot harass you, they don't have to stop contacting you because you write them a letter demanding that they leave you alone.

3. A Friend or Relative Cosigned a Loan

4. You Could Pay Your Debts Over Three to Five Years

A judge may seriously consider dismissing or converting your case if all of the following are true:

• a substantial majority of your debts are consumer (not business) debts
• you have an adequate and steady income or other property, and
• with little modification of lifestyle, you could pay off all or most of your debts over three to five years.

5. You Want to Prevent Seizure of Wages or Property

Normally, a creditor's only legal means of collecting a debt is to sue you, win a court judgment and then try to collect the amount of the judgment out of your property and income. A lot of your property, however, including food, clothing, personal effects and furnishings, is probably protected by law (exempt) from being taken to pay the judgment. And, quite likely, your nonexempt property is not worth enough to tempt a creditor to go after it, as the costs of seizure and sale can be quite high.

Creditors usually first go after your wages and other income. Here too, however, laws protect you. Only 25% of your net wages can be taken to satisfy a court judgment (up to 50% for child support and alimony). And often, you can keep more than 75% of your wages if you can demonstrate that you need the extra amount to support yourself and your family. Income from a pension or other retirement benefit is usually treated like wages. Creditors cannot touch public benefits such as AFDC, unemployment insurance, disability insurance or Social Security.

6. You Defrauded Your Creditors

Certain activities are red flags to the courts and trustees. If you have engaged in any of them during the past year, do not file for bankruptcy until you consult a bankruptcy lawyer. These no-nos are:

• unloading assets to your friends or relatives to hide them from creditors or from the bankruptcy court
• incurring debts for non-necessities when you were clearly broke
• concealing property or money from your spouse during a divorce proceeding, and
• lying about your income or debts on a credit application.

7. You Recently Incurred Debts for Luxuries

Last-minute debts presumed to be nondischargeable include:

• debts of $1,000 or more to any one creditor for luxury goods or services made within 60 days before filing, and
• debts for cash advances in excess of $1,000 obtained within 60 days of filing for bankruptcy.

Creditors, too, are getting aggressive about crying "fraud." Visa and MasterCard lose an estimated $1.5 billion a year from people who filed for bankruptcy, and Visa claims that 30% to 40% of the losses came from fraudulent debts. In an effort to minimize the number of last-minute debts that may be discharged, Visa challenges nearly one-half of all bankruptcy cases filed by people who made large luxury charges or cash advances shortly before filing for bankruptcy.

Side Bar--Credit Card Fraud

• short time between incurring the charges and filing for bankruptcy
• consulting an attorney before incurring more debt
• recent charges over $1,000
• many charges under $50 (to avoid pre-clearance of the charge by the credit card issuer) when you've reached your credit limit
• charges after the card issuer has ordered you to return the card or sent several "past due" notices
• changes in your pattern of use of the card (for instance, much travel after a sedentary life)
• charges after you're obviously insolvent (no job, income or savings); you could probably defeat a claim of fraud because of no job if you diligently sought employment
• charges for luxuries, and
• multiple charges on the same day.

These programs are quite aggressive. Bank employees review bankruptcy filings to discern the date of insolvency, and then challenge credit card charges made after that date. The banks claim that insolvency is evidenced by any of the following:

• A notation in the customer's file that the customer has met with an attorney.
• A rapid increase in spending, quickly followed by 60-90 days of quiet.
• The date noted on any attorney's fee statement, if the customer consults a lawyer for help with a bankruptcy.

8. You Expect Debts for Necessities

A go-slow approach works best in the case of debts for necessities, such as additional medical costs you anticipate because of an existing illness, the cost of buying your children new school clothes or substantial heating costs during the upcoming winter.

Does Bankruptcy Make Economic Sense?

• Will bankruptcy discharge enough of your debts to make it worth your while?
• Will you have to give up property you desperately want to keep?

Will Bankruptcy Discharge Enough of Your Debts?

• back child support and alimony obligations, and debts considered in the nature of support, such as an obligation to pay attorney's fees for a child support hearing, or an obligation to pay marital debts in lieu of alimony

• student loans that first became due fewer than seven years ago (plus any time you received a deferment or forbearance or were in an earlier bankruptcy case)

• court-ordered restitution

• income taxes less than three years past due

• condominium and cooperative association dues, and

• court judgments for injuries or death to someone arising from your intoxicated driving.

• Debts incurred on the basis of fraud, such as lying on a credit application or writing a bad check.

• Debts from willful or malicious injury to another or another's property, including assault, battery, false imprisonment, libel and slander.

• Debts from larceny (theft), breach of trust or embezzlement.

• Debts arising out of a marital settlement agreement or divorce decree (that aren't otherwise automatically non dischargeable as support or alimony), such as credit card debts you agree to pay or payments you owe to an ex-spouse to even up the property division. The court won't let you discharge these debts unless you prove that you need the money for basic support or to continue the operation of a business or that the benefit you'd receive by the discharge outweighs any detriment to your ex-spouse or children.

As a general rule, if more than 50% of your debts are non dischargeable, Chapter 7 bankruptcy's disadvantages probably outweigh the advantages. If you can discharge more than 50% of your debts, however, Chapter 7 bankruptcy may make sense; after your discharge, you should be in a better position than before to pay off the non dischargeable debts.

Even if the bulk of your indebtedness is from debts that are nondischargeable only if the creditor files an objection with the court, it may still make sense to file for bankruptcy and hope your creditors don't object.

How Much Property Will You Have to Give Up?

Certain kinds of property are exempt in almost every state, while others are almost never exempt. The following are items you can typically keep (exempt property):

• motor vehicles, to a certain value
• reasonably necessary clothing (no mink coats)
• reasonably needed household furnishings and goods (the second TV may have to go)
• household appliances
• jewelry, to a certain value
• personal effects
• life insurance (cash or loan value, or proceeds), to a certain value
• pensions
• part of the equity in your home
• tools of your trade or profession, to a certain value
• portion of unpaid but earned wages, and
• public benefits (welfare, Social Security, unemployment compensation) accumulated in a bank account.

• expensive musical instruments (unless you're a professional musician)
• stamp, coin and other collections
• family heirlooms
• cash, bank accounts, stocks, bonds and other investments
• second car or truck, and
• second or vacation home.

Alternatives to Chapter 7 Bankruptcy

Do Nothing

So, if you don't anticipate having a steady income or property a creditor could grab, bankruptcy is probably not necessary. Your creditors probably won't sue you, because it's unlikely they could collect the judgment. Instead, they'll simply write off your debt and treat it as a deductible business loss for income tax purposes. In several years, it will become legally uncollectible under state law (called the statute of limitations). And in seven years, it will come off your credit record.

Negotiate With Your Creditors

Get Outside Help To Design A Repayment Plan

If you don't want to negotiate with your creditors, you can turn to a lawyer, a non-lawyer bankruptcy typing service or a nonprofit credit counselor, such as Consumer Credit Counseling Service.

Pay Over Time With Chapter 13 Bankruptcy

If you have steady income and think you could squeeze out a steady amount each month to make payments on your debts, Chapter 13 bankruptcy may be a good option for you. Instead of having your nonexempt assets sold to pay creditors (which is what happens in Chapter 7 bankruptcy), you keep your property and use your income to pay all or a portion of the debts over three to five years. The minimum amount you must pay is roughly equal to the value of your nonexempt property. In addition, you must pledge your disposable income (net income less reasonable expenses) over the life of your plan. The income you use to repay creditors need not be wages. You can use benefits, investment income or receipts as an independent contractor or business person.

To file for Chapter 13 bankruptcy, you fill out the same forms as in a Chapter 7 bankruptcy, listing your money, property, expenses, debts and income, and then file them with the bankruptcy court. In addition, you must file with the court a workable plan to repay your debts, given your income and expenses. You make payments under the plan directly to the bankruptcy trustee, who in turn distributes the money to your creditors. As in Chapter 7 bankruptcy, the act of filing immediately stops your creditors from taking further action against you.

Usually, the plan is designed so that you make regular payments on your secured debts and reduced payments on your unsecured debts for three years, at which time any remaining unpaid balance on the unsecured debts is wiped out. In some cases, a five-year repayment period is allowed.

You can file for Chapter 13 bankruptcy at any time, even if you wound up a Chapter 7 bankruptcy the day before or just completed another Chapter 13 repayment plan. If you file more than once, however, you'll be required to pay back a large percentage of your debts. You cannot file for Chapter 13 bankruptcy, however, if your secured debts exceed $750,000 or your unsecured debts exceed $250,000.

If for some reason you cannot finish a Chapter 13 repayment plan-for example, you lose your job six months into the plan and can't make the payments-the trustee may modify your plan. The trustee may give you a grace period (if the problem looks temporary), reduce your total monthly payments or extend the repayment period. As long as it looks like you're acting in good faith, the trustee will try to be accommodating and help you across rocky periods. If it's clear that there's no way you'll be able to complete the plan because of circumstances beyond your control, the court might let you discharge your debts on the basis of hardship.

If the bankruptcy court won't let you modify your plan or give you a hardship discharge, you have two options:

• You can convert your case to a Chapter 7 bankruptcy unless you received a Chapter 7 discharge within the previous six years.

• You can have the bankruptcy court dismiss your Chapter 13 petition, which would leave you in the same position as you were in before you filed your petition, except you'll owe less because of the payments you made. Also, if your Chapter 13 bankruptcy is dismissed, your creditors may add to their debts any interest that was abated during your Chapter 13 petition case.

Chapter 13 Bankruptcy--Introduction

Chapter 13 bankruptcy lets you rearrange your financial affairs, repay a portion of your debts and put yourself back on your financial feet. You repay your debts through a Chapter 13 plan. Under a typical plan, you make monthly payments to someone called a bankruptcy trustee, who is appointed by the bankruptcy court, for three to five years. The bankruptcy trustee distributes the money to your creditors.

Chapter 13 bankruptcy isn't for everyone. If your total debt burden is too high or your income is too low or irregular, you may not be eligible. You may be better off handling your debt problems in another way--such as filing for Chapter 7 bankruptcy, seeking help from a nonprofit consumer counseling group or negotiating with your creditors on your own.

Here are some important features of Chapter 13 bankruptcy:

• Chapter 13 bankruptcy is very powerful. You can use it to stop a house foreclosure, make up the missed mortgage payments and keep the house. You can also pay off back taxes through your Chapter 13 plan and stop interest from accruing on your tax debt.

• Filing your papers with the bankruptcy court stops creditors in their tracks. When you file for Chapter 13 bankruptcy (or any other kind of bankruptcy), something called the automatic stay goes into effect. It immediately stops your creditors from trying to collect what you owe them. At least temporarily, creditors cannot legally grab (garnish) your wages, empty your bank account, go after your car, house or other property, or cut off your utility service or welfare benefits.

• Some people use Chapter 13 bankruptcy to buy time. For example, if you are behind on mortgage payments and about to be foreclosed on, you can file Chapter 13 bankruptcy papers to stop collection efforts, and then attempt to sell the house before the foreclosure.

• Chapter 13 bankruptcy requires discipline. For the entire length of your case (three to five years), you will have to live under a strict budget; the bankruptcy court will not allow you to spend money on anything it deems nonessential.

• The majority of debtors never complete their Chapter 13 repayment plans. Although most people file for Chapter 13 bankruptcy assuming they'll complete their plan, only about 35% of all Chapter 13 debtors do. Many drop out very early in the process, without ever submitting a feasible repayment plan to the court. If you can come up with a realistic budget and stick to it, however, you should have no trouble completing your Chapter 13 plan.

• Payments may be deducted from your wages during your case. If you have a regular job with regular income, the bankruptcy court will probably order that the monthly payments under your Chapter 13 plan be automatically deducted from your wages and sent to the bankruptcy court.

• Bankruptcy rules vary from court to court. Bankruptcy law comes from the federal Congress and is meant to be uniform across the country. But when disputes arise about the bankruptcy laws, bankruptcy courts make the decisions--and they don't all decide the issues in the same way. The result is that bankruptcy law and practice vary significantly from court to court and from region to region. This book highlights the different ways courts have ruled on major issues in Chapter 13 bankruptcy. But this book can't possibly address every variation. If you research a question yourself or hire a bankruptcy lawyer, you'll need to be sure the information you get applies in your bankruptcy court.

• Chapter 13 bankruptcy can stay in your credit file for up to ten years from the day you file your papers, although rarely are Chapter 13 bankruptcies reported for more than seven years. After your case is over, however, you can take steps to improve your credit. In fact, some Chapter 13 bankruptcy courts have established programs to help you do just that. In such a program, if you have paid off around 75% or more of your debts, you may attend money management seminars and apply for credit from certain local creditors.

Are You Eligible for Chapter 13 Bankruptcy?

Businesses Can't File for Chapter 13 Bankruptcy

If you own a business as a sole proprietor, however, you can file for Chapter 13 bankruptcy as an individual. You can include in your Chapter 13 bankruptcy case business-related debts you are personally liable for.

There is one exception: Stockbrokers and commodity brokers cannot file a Chapter 13 bankruptcy case, even if just to include personal (nonbusiness) debts. (11 U.S.C. § 109(e).)

You Must Have Stable and Regular Income

• regular wages or salary
• income from self-employment
• wages from seasonal work
• commissions from sales or other work
• pension payments
• Social Security benefits (although one court has ruled that Social Security payments do not constitute regular income to fund a Chapter 13 plan)
• disability or workers' compensation benefits
• unemployment benefits, strike benefits and the like
• public benefits (welfare payments)
• child support or alimony you receive
• royalties and rents, and
• proceeds from selling property, especially if selling property is your primary business.

You Must Have Disposable Income

To determine if your disposable income is high enough to fund a Chapter 13 plan, you must create a reasonable monthly budget. If you are not proposing to repay 100% of your debts and the court, the trustee or a creditor thinks your budget is too generous--that is, it includes expenses other than necessities--your budget will be challenged.

Your Debts Must Not Be Too High

In addition, for you to be eligible for Chapter 13 bankruptcy, your unsecured debts cannot exceed $250,000. An unsecured debt is any debt for which you haven't pledged collateral. The debt is not related to any particular property you possess, and failure to repay the debt will not entitle the creditor to repossess property. Most debts are unsecured, including bank credit card debts, medical and legal bills, student loans, back utility bills and department store charges.

When Chapter 13 Bankruptcy Is Better Than Chapter 7 Bankruptcy

You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.

You have a tax debt. If a large part of your debt consists of federal taxes, what happens to your tax debts may determine whether Chapter 7 bankruptcy or Chapter 13 bankruptcy is a better choice for you.

You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are true:

1. The IRS has not recorded a tax lien against your property. (If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect.)
2. You didn't file a fraudulent return or try to evade paying taxes.
3. The liability is for a tax return (not a Substitute or Return) actually filed at least two years before you file for bankruptcy.
4. The tax return was due at least three years ago.
5. The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 240 days (eight months) before you file for bankruptcy. (11 U.S.C. §§ 523(a)(1) and (7).)

• If you filed any bankruptcy in the past--even if the case was kicked out of court the next day--the time the case was pending plus six months is added to the time requirements in numbers 3, 4 and 5 above.
• If you made an Offer in Compromise to the IRS, the time your offer was pending plus 30 days are added to the 240-day requirement.
• If you requested a Taxpayer Assistance Order, the time your request was pending is added to the three time requirements above.

You need help repaying your debts now, but need to leave open the option of filing for Chapter 7 bankruptcy in the future. This would be the case if for some reason you can't stop incurring new debt.

You are a family farmer who wants to pay off your debts, but you do not qualify for a Chapter 12 family farming bankruptcy because you have a large debt unrelated to farming.

You have valuable nonexempt property. When you file for Chapter 7 bankruptcy, you get to keep certain property, called exempt. If you have a lot of nonexempt property (which you'd have to give it up if you file a Chapter 7 bankruptcy), Chapter 13 bankruptcy may be the better option.

You received a Chapter 7 discharge within the previous six years. You cannot file for Chapter 7 again until the six years are up.

You have a codebtor on a personal debt. If you file for Chapter 7 bankruptcy, your creditor will go after the codebtor for payment. If you file for Chapter 13 bankruptcy, the creditor will leave your codebtor alone.

Chapter 13 Bankruptcy Versus Chapter 11 Bankruptcy

The initial filing fee is currently $800, compared to $175 for Chapter 7 or $160 for Chapter 13 bankruptcy. In addition, you must pay a quarterly fee that is a percentage of your debts (often several hundreds or thousands of dollars) until your reorganization plan is approved or dismissed, or your case is converted to Chapter 7 bankruptcy. Most attorneys require a minimum $7,500 retainer fee to handle a Chapter 11 bankruptcy case. Add to that the Chapter 11 bankruptcy court fees, which one year after you file could run you $10,000. If you want to read more on this kind of bankruptcy, see A Feast for Lawyers, by Sol Stein (Evans, M., & Co. Inc.).

Help From a Lawyer

How Much Do You Pay in Chapter 13?

1. Add up the total value of your "nonexempt" property. Each state has laws that determine which items of property are exempt in bankruptcy, and in what amounts. For instance, many states exempt health aids, "personal effects" (things such as electric shavers, hair dryers and toothbrushes), ordinary household furniture and clothing without regard to their value.

Other kinds of property are exempt up to a limit. For example, in many states, furniture or a car is exempt to several thousands of dollars. This exemption limit means that any equity in the property above the limit isn't exempt. (Equity is the market value minus how much you still owe.)

Generally, the following items are exempt:

• motor vehicles, to about $2,000
• reasonably necessary clothing (no fur coats)
• reasonably necessary household goods and furnishings
• household appliances
• jewelry, to a few hundred dollars
• personal effects
• life insurance (cash or loan value or proceeds), to about $4,000
• part of the equity in a residence (the amount varies from state to state)
• pensions
• public benefits
• tools of a trade or profession, to a certain value, and
• unpaid but earned wages.

• Any of your unsecured debts are "priority debts"--such as back taxes or child support--which must be repaid in full.
• The court requires debtors to pay back a high percentage of unsecured debts. If you have little nonexempt property and propose paying back only a small portion or your unsecured debts, those creditors might object to your plan. In some parts of the country, bankruptcy courts may approve Chapter 13 plans in which unsecured creditors receive nothing. In other areas, courts rarely approve Chapter 13 plans unless unsecured creditors receive 100% of what they are owed. Most courts fall somewhere in between.

2. Add the amount of missed payments you owe to any secured creditors, such as mortgage or car lenders, whose property you want to keep. Include interest at the rate specified in your contract with the creditor.

3. Some courts require that you add an amount equal to at least three year's worth of interest on the amount in Step 1. There are several ways to figure out the rate you might have to pay; for now, leave this blank or use 10%. This money may be required to compensate creditors for the fact that they're getting their money over a period of years instead of all at once.

4. Add 10% of your subtotal to cover the fee charged by the bankruptcy trustee, the person appointed by the court to oversee a bankruptcy case.

5. Total all the figures you've listed. This is approximately the amount you'd have to pay in a Chapter 13 case.