Ever wonder how to determine the amount of your monthly plan payment in a Chapter 13 bankruptcy case?
Chapter 13 is a repayment plan that your creditors have to accept, as long as certain requirements are met.
That means they do not get to vote for, or against, your proposed payment as they can in a Chapter 11 case.
But there are rules for how your plan is structured, how much gets paid out, and for how long.
HOW IS THE PLAN PAYMENT DETERMINED?
The repayment can be anywhere from 0%-100% of unsecured claims.
This confuses a lot of people, but it is true.
There are a couple of overriding rules in Chapter 13:
- You must pay all of your disposable income into the plan for the plan term (36-60 months)**
- Your creditors must receive at least as much as they would get if you filed a Chapter 7 case.
- The Plan must be proposed in “good faith”
With that in mind, here are the elements that go into determining the amount of the plan payment in Chapter 13:
- Your Disposable Income (Budget).
- Which debts must be paid 100%?
- How much would your unsecured creditors get in a Chapter 7 (liquidation analysis)?
- Trustee’s Fees
**(The minimum plan term is determined by the amount of income received in the 6 calendar months prior to filing the case)
A. Your Budget
This is the most obvious determining factor.
Disposable income is what is left over after you subtract necessary living expenses from your net income.
If you are self-employed or have variable income, you would need to do an average over some period of time (typically 6-12 months) to establish your regular income rate.
Not all expenses are allowed to be subtracted from income.
For example, if you spend $3,000 per month on food, the Trustee is likely to object.
It’s not possible to list all the different types of expenses here that are allowed, or not allowed.
An experienced bankruptcy attorney can tell you what is likely to be allowed in your jurisdiction.
B. Which Debts Get Paid 100%?
In a Chapter 13 certain debts are required to be paid 100% during the plan term (36-60 months).
Among these are priority debts (such as income taxes incurred within 3 years prior to filing), past due domestic support obligations, any arrears on secured debts which are being cured (caught up on) during the case (such as a mortgage), just to name a few.
So step one after figuring out your budget, is to see whether there’s enough there to pay off these required debts.
If your disposable income is $200 per month and you have to catch up on $20,000 of mortgage arrears, it’s not going to work.
Assuming you have enough disposable income to pay the required debts 100%, then we look at how much has to be paid to the remaining unsecured creditors.
C. Liquidation Analysis
This analysis takes the value of all of your assets, subtracts any liens (mortgages, secured debts) secured by those assets, and subtracts any exemptions allowed under applicable law (see more on exemptions).
Once that number is established, you take that number and subtract from it any of the priority debts referenced above (the ones that have to be paid 100% which in a Chapter 7 would NOT include secured debt arrears). You then subtract out estimated trustee’s fees (these are set forth by statute).
Finally you are left with how much is available to pay remaining unsecured creditors.
If that number is positive, then you have to pay at least that amount to creditors in a Chapter 13 plan.
D. Chapter 13 Trustee’s Fees
The Chapter 13 Trustee gets paid a percentage of all disbursements made to creditors.
The percentage amount varies from district to district.
In the Central District of California, the percentage is approximately 10%.
This must be factored in when determining if there is enough to pay all the required claims referenced above.
There are many things that can be done to get your plan payments to where they need to be–balancing your desire for the lowest possible payment with what is required by The Bankruptcy Code.
There are a lot of moving parts in Chapter 13 and it can get very complicated.
Be sure to hire an experienced bankruptcy attorney to analyze your situation and represent you in getting your plan approved and achieving your goals.
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