Do you plan to file for Chapter 13, or repayment plan, bankruptcy? Then one of your biggest tasks will be to craft your proposed payment plan for the three to five years required. And the underlying principle of any bankruptcy repayment plan is known as the 'best effort' requirement. What should you know about this? Here are answers to your questions about this important factor.
What Is the Best Effort Requirement?
As its name suggests, this requirement is that the debtor must come up with a payment plan that represents their best effort to pay their unsecured debts before discharge. It doesn't necessarily have a black-and-white dollar amount, but you do have a few guidelines to achieve the right amount. Ultimately, the trustee of the court will determine if your plan meets these criteria.
What If Your Income Is High?
Debtors who earn more than the median amount for their household size and residence are barred from filing Chapter 7, or liquidation, bankruptcy. They must also complete a calculation of their disposable income in order to draft a best-effort payment plan. This calculation may include prescribed amounts for living expenses as well as certain expenses specific to your actual living situation.
In general, how do you calculate your disposable income? Add up your average income over the six months prior to filing. Then subtract priority payments (such as taxes and child support), living expenses, and secured debt payments on assets you reaffirmed. The remaining amount is your disposable income, and this is the target amount you will likely be expected to pay monthly.
What If Your Income Is Low?
If your income falls below the median for your state and household size, you qualify to claim either Chapter 7 or Chapter 13 bankruptcy. Because of this, you do not have to do the disposable income calculation. However, your plan must still clearly be your best effort to pay as much as possible.
How Can You Improve Your Effort?
Because each claimant designs their own repayment plan — with priority debt exceptions like child support and taxes — you have some control over how it works. You may improve your plan and demonstrate that you're working in good faith by doing things like canceling unnecessary services or reducing living expenses. Your attorney can help you identify weak points that may cause the trustee to doubt your best effort.
Where to Start
What is your best effort towards repaying debt under Chapter 13? What state or federal rules apply? And how can you ensure that your plan will be approved by the court? Start by working with a bankruptcy lawyer in your state today.