Calculating Your Monthly Payment in a Chapter 13 Plan

A Chapter 13 bankruptcy, also known as a wage earner’s plan, helps you get out of debt trouble through a court-supervised repayment schedule. The most beneficial aspect of this remedy is that you can significantly reduce your total debt while being granted several years to pay it off monthly. During this time, creditors are barred from taking any other actions to collect. However, the success of the plan depends upon keeping up with the payments, which in turn requires setting a payment amount that you can manage.

A Chapter 13 plan must ensure that unsecured creditors receive at least as much as they would get if the debtor’s non-exempt assets were liquidated in a Chapter 7. Determining an appropriate payment amount involves an analysis of the debtor’s income and of the type of debts involved.

The debtor’s income is the primary factor influencing the monthly payment amount. The plan must propose paying out all the debtor’s projected disposable income over the applicable repayment period, which is either three or five years. Disposable income is calculated by subtracting from the debtor’s gross income all necessary and reasonable living expenses, such as housing, food, transportation, utilities, clothing, healthcare and child care.

Next considered are the debtor’s total debts and their types. Debts are categorized as follows:

1. Priority debts — These are unsecured debts that must be paid in full through the bankruptcy plan. Common priority debts are certain income taxes and past-due domestic support obligations.
2. Secured debts — These are debts that are secured by collateral, such as a car loan or a mortgage. The debtor can either pay the debt in full or surrender the collateral. If the debtor chooses to keep the collateral, they may be able to “cram down” the amount they owe, which means reducing it to the fair market value of the collateral.
3. Unsecured debts — Debts that have no collateral may be partially discharged depending on the funds available. If the debtor has assets that are not exempt under federal or state law, they must pay unsecured creditors as much as the value of those assets.

The monthly payment amount also includes expenses related to the bankruptcy itself. The debtor’s attorneys’ fees are generally paid through the plan. Also included is the administrative fee paid to the bankruptcy trustee, which is a percentage of the funds distributed through the plan.

Even after the monthly payment amount is set, it may be subject to alteration based on changes in circumstances. For example, if you later prove you’ve undergone a significant loss in income or a sizable increase in expenses, the trustee and the court may agree to grant either a temporary moratorium on payments or a long-term reduction in total amount due.

Jeff Field & Associates in Scottdale, Georgia helps individuals throughout the Atlanta metropolitan area discharge eligible debt through Chapter 13 bankruptcy. To schedule a personal consultation, call 404-381-1278 or contact us online.