You have read about filing for Chapter 13 Bankruptcy, the costs, and other things you need to be aware of. This guide explains how a Chapter 13 payment plan works using a practical example and how the repayment plan is structured.
Firstly, when I first looked at the official Chapter 13 payment plan form, I was confused. How much am I actually paying each month to the attorney, to the trustee, etc?
Thankfully, I found one website that provided free estimates called Ascend Finance that has a free Chapter 13 calculator that estimate your Chapter 13 payment plan example.
For each, here's a few Chapter 13 payment plan examples from Ascend's calculator from California, Missouri, and Indiana
Now that we covered a few Chapter 13 payment plan examples, let's go through what is included in your Chapter 13 plan payment.
What Payments are Included in a Chapter 13 Plan Payment
Chapter 13 bankruptcy is also called a wage earners plan since it is ideal for people with some disposable income. If you have a consistent income, you can file for Chapter 13 bankruptcy and develop a new payment plan to repay your debts. This plan is called the Chapter 13 repayment plan.
Under Chapter 13, you will propose a specific payment plan that works for you, and you will be making monthly payments to pay your debt within a three to five year period. The duration of your repayment plan will depend on your monthly income.
If your monthly income is less than the median income level in your state, your repayment period will be three years unless the court specifies otherwise. On the other hand, if you earn more than the state median, your repayment plan can extend to five years. When making repayments, your creditors cannot take collective measures or take any collections. Instead, the payments you make will be passed on to your creditors by your trustee.
Before filing for Chapter 13 bankruptcy, it is essential to research and understand what makes up the repayment plan. Here are figures that make up a Chapter 13 repayment plan:
- Attorney fees
- Disposable income
- Administrative fees
- Trustee fees
- Secured payments
- Auto payments
- Mortgage payments
How Can I Estimate My Chapter 13 Plan Payment?
Your payment plan will depend on your income and include the above payments. To estimate your plan payment, use a Chapter 13 bankruptcy calculator.
What Debts Are Factors in a Chapter 13 Payment Plan?
When you calculate an estimate of your Chapter 13 payment plan, you will get a rough estimate from the minimum payment estimate. This plan doesn't include non-exempt assets. So, if you have disposable income or assets not included in the estimate, your payment plan will be significantly increased. Here are some debts that will be added to your plan;
Debts in Arrears:
- Real Estate Debt
- Automobile Debt
- Other Debt: including local debt, school debt, tax debts, state debt, alimony, child support, and balance on any loans from personal property
What the calculator does not consider
- Married individuals filing for bankruptcy
- Total of claims from personal injury or death due to DUI
- Total lower priority debts like those in bankruptcy schedule E
- The trustee charges a 10% fee
- Average legal fee in your state
- Maximum duration is 60 months
- There is interest in secured claims
Why Your Chapter 13 Payment Plan May Be Above the Minimum
1. You have disposable income
If you have a disposable income when paying back your Chapter 13 bankruptcy, it could increase your payments. The role of the bankruptcy court is to ensure you pay back creditors. So, when filling out forms when filing your petition, the court will ask you to fill out three forms to determine your income, expenses, debt obligations, and assets.
The court uses the information you fill in to determine your income and disposable income after meeting your expenses to determine if you have enough left over to pay unsecured creditors.
The first form you will fill out will be an income form to help calculate your disposable income. IRS standards and state guidelines are used to calculate your income after paying necessary expenses like rent, mortgage, food, medical insurance, etc., to determine your disposable income.
Second, you will need to fill out the Schedule I: Income, and third, Schedule J form for your expenses. You should put accurate numbers when filing out these documents since you might later be asked to present documents to verify these numbers.
2. Your Equity in Assets Exceed State Exemptions
Every state has its exemptions for what assets can be protected when one files for bankruptcy. If the equity in your assets is or more than the state exemption, you will pay for a certain amount under your Chapter 13 repayment plan. These assets include a house, vacation home, car, an RV, or jet skis. Since Chapter 7 bankruptcy focuses on liquidation, you should consider filing Chapter 13 despite having significant value in your assets.
An Overview of the Chapter 13 Plan Process
Other than court exceptions, you will need to file a proposed repayment plan when filing a bankruptcy petition or 14 days after filing. On receiving the submission, the court can approve your petition. Your proposed repayment plan should include payments to a trustee either bi-weekly or monthly. If the court approves your plan, the trustee will be responsible for distributing payments to your creditors according to the plan.
When you file for bankruptcy, the court will notify your creditors, and they will submit claims. There are three main types of claims. It can be a priority, secured or unsecured.
A priority claim is a type of claim that you must pay in full unless you establish an agreement with a creditor on the claim. Secured claims are claims where the creditor has the right to take an asset if the lender defaults on their debts. Lastly, unsecured claims are claims where there was no collateral, and thus, the creditor does not have the right to take assets from the debt if they default.
You don't need to pay unsecured claims in full when filing for bankruptcy. However, this will depend on your disposable income. If your disposable income is more than the applicable commitment period, you won't need to pay the unsecured debts in full
Unsecured creditors should receive as much payment as they would if you had filed for Chapter 7 bankruptcy. As earlier discussed, the applicable commitment period to your chapter 13 bankruptcy period depends on your monthly income. If your income is higher than the state median, your repayment duration will be five years. However, you can shorten the plan to clear your debts more quickly.
After filing for bankruptcy, before the court approves your repayment plan, you can begin making your payments to the trustee within 30 days. If any of your payments are due before the court approves your repayment plan, you can directly make a protection payment to the creditor. But you will exclude the amount you pay to your creditors from the amount they would have paid to the trustee under the plan.
Alternatives to Chapter 13 Plan
If you are not sure if the Chapter 13 plan is best for you, you may want to consider taking a "Should I File for Bankruptcy" Quiz or Ascend's free free Chapter 13 calculator. This can help you determine whether or not bankruptcy is right for you. There are also other alternatives you can consider. For example, Chapter 7 bankruptcy, debt settlement, and debt management. Each plan has unique qualifications you must meet and offer distinct benefits and drawbacks. Consult a bankruptcy attorney to compare the costs under the different plans to identify the best debt relief option for you.