I recently fielded a question from a fellow bankruptcy attorney. The question raised some interesting factors to consider when preparing a set of Chapter 13 bankruptcy papers. First here is an edited version of the question:
Debtor only has $2,500 in credit card debt. He has $120,000 in student loan debt and wants to do a chapter 13 to get some breathing room on the monthly student loan payments. On Form 22C his disposable monthly income (DMI) is very high: $2,800. This is purely theoretical and includes his wife’s income, who will not be filing. He doesn’t actually have that kind of disposable income. My question is: if we propose to pay 100% of the non student loan unsecured debt ($2,500), do we have to still pay the equivalent of $2,800/month for 60 months (which would all go to the student loans)? Are student loans considered as part of the “general unsecureds” for the purpose of this calculation? Although student loans are not currently dischargeable, we are not allowed to give them priority payments; but can we pay them less than DMI x 60? Are we able to designate that certain payments go to principal? Does the nonfiling spouse’s income HAVE to be considered when the plan is really meant to pay down the separate student loan debt of the filer husband? She’s not liable on this debt as it was incurred before marriage.
For your edification, here is my response: