Chapter 13 Repayment Plan: 6 Things to Know

6 important things to know when agreeing to a chapter 13 repayment plan

Chapter 13 bankruptcy is a type of bankruptcy ideal for people with an income. Under the plan, the debtor will come up with a repayment plan for their creditors that will last between three and five years. The court will determine how much the debtor will pay unsecured creditors and supervise the deters repayment plan.

Reasons You Might Need to File Chapter 13 Bankruptcy

  • To pay back your secured debts, or no dischargeable debts like taxes and domestic support arrears over a manageable period
  • Stop debt collection measures- repossession of your car, foreclosure on your home, wage garnishment, lawsuits, and other forms of harassment
  • To repay a portion of your unsecured debts instead of paying it fully

We will discuss Chapter 13 in detail, explain various bankruptcy forms, how these forms affect your plan payment, and what could affect your repayment plan. Calculating your payments under Chapter 13 is a complicated process. However, we will try to simplify it by helping you understand the forms used to calculate your repayment plan. This is general advice, but we can help you find a Chapter 13 bankruptcy attorney near you for legal consultation before filing for bankruptcy. 

Chapter 13 Repayment Plan Calculator

Here are two examples of estimated monthly payments in a chapter 13. It will vary case by case, but it is helpful to see the breakdown.

What Forms Impact Your Chapter 13 Repayment Plan?

Nearly all Chapter 13 forms will affect the calculation of your repayment. Here is the official Chapter 13 plan form. 

When filing for bankruptcy, you must fill out the information on your assets, income, debts, expenses, and general financial situation. Any of these areas can affect your payment plan. How much will pay will depend on the:

  • Your assets, their value, and your claim on bankruptcy exemptions on the asserts
  • The debts you owe and the amount
  • Your household's monthly income and expenses
  • The recent transfer of assets
  • If you owe back priority debts like domestic support and payments
  • Whether you have made recent luxury chases using your credit card
  • If you have made any repayments to your relatives or insiders in the past 24 months

What Does a Chapter 13 Trustee Do with a Chapter 13 Repayment Plan?

Once you come up with a proposed Chapter 13 repayment plan, the Chapter 13 trustee will carefully analyze the information on your bankruptcy forms to determine if anything can change the proposed payment plan. Since many factors can affect your repayment plan, we will focus on the basic forms used to calculate the payment okay and the common issues that affect your repayment plan.

When to Consult a Chapter 13 Attorney

You might have a complex case and will need to consult an attorney if:

  • You made a property transfer in the last 24 months
  • You made a transfer to trust within ten years
  • Earn income from a business, or interest in a business
  • Have ongoing legal actions
  • Have made payment to creditors for your owed debts in the last 90 days
  • You are holding property for another person
  • Incurring extraordinary expenses

A Chapter 13 bankruptcy case will help you get rid of your debts by restructuring them into an affordable payment plan. It is important to accurately estimate how much you will be paying in Chapter 13, as a mistake might be costly. Since the basics of a Chapter 13 payment plan are difficult, it is best to consult a bankruptcy attorney who can get accurate estimates.

How Long Will My Chapter 13 Repayment Plan Be: 3 or 5 Years?

Most debtors take either three or five years to complete their repayment plan. So, how long will your repayment plan take?

If, during your plan, your income increases either because of a bonus or commission, you may earn more during the year, say Christmas. If you don't have a regular income, you can consult a bankruptcy attorney to help you calculate your monthly income.

How long your plan takes will depend. Take your current monthly income. Multiply it by 12 to get your annual income. Now, if your annual income is less than the median income in your state for a household of your size, then you have passed the Chapter 13 Means test and may file for the 36-month plan. On the other hand, if your annual income is higher than the median income in your state, you will commit to a 60-month plan. 

While in Chapter 13, all your disposable monthly income will be channeled towards unsecured creditors. Use the Chapter 7 Means Test to see the median income for your state. The UST Website will have the most rent figures on the median income.

Use Official Form 122C-1 and Official Form 122C-2, the Statement of Your Current Monthly Income and Calculation of Commitment Period, and the Chapter 13 Calculation of your Disposable Income, respectively.

Completing Your Form 122C-1: Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period

The first section of your Means Test will determine your commitment period based on your current monthly income. Your current monthly income is the average of your household income in the last six months before filing your case. 

So, even if you have a spouse who is not filing for bankruptcy, you will include their income under household income. You will not, however, include the following income in your Chapter 13 Means Test:

  • VA disability income
  • Social security disability income
  • Social security retirement income
  • Payment to victims of crimes- war crimes or crimes against humanity
  • Payment to victims of terrorism- domestic or international

Add your income from other sources you have earned in the last six months before filing your case. Divide by six to get your current monthly income. However, it is more complicated than that. 

The Disposable Income Test in Chapter 13 

The main factor considered in Chapter 13 bankruptcy is the debtor's disposable income which is calculated as follows:

Monthly income minus allowable and reasonable monthly expenses.

However, it is not merely subtracting your actual expenses. When calculating disposable income in chapter 13, you should use the IRS expense figures and the national data for your expenses. You can find the current expense figures on the UST website. On the website, you will see the median income figures.

For example, if the current IRS national standard monthly expense of food for a family of four is $423, and you have a family of four, your food expenses should be within this range. If your monthly food expenses exceed this, you should have relevant receipts and valid excuses for needing special foods that increase your budget. Sometimes you may have the proof for this, but the court might limit you to the national standards.

National standards apply to:

  • Food
  • Utilities
  • Apparel and services
  • Transpiration
  • Housing
  • Housekeeping supplies
  • Out-of-pocket medical expenses
  • Personal care products/services 
  • Miscellaneous expenses

Once you deduct the allowable monthly expenses from your income, you get your disposable monthly income. This amount will be included in your Chapter 13 bankruptcy payment.

What Next If I Have Disposable Income

If, based on the calculation above, you have some disposable income, the court will use it to repay your debts. Use these bankruptcy forms to estimate if you have enough disposable income to repay your unsecured creditors.

The first form is used to calculate your disposable income to determine if you have enough disposable income to repay your lenders. This form uses location guidelines and the IRS standard to compute disposable income.

The second form is Schedule I detailing your income, and the third is Schedule J detailing your expenses. While you can report your income and expenses on your own, it is essential to fill out the forms accurately, as the court might ask you to present supporting documents to verify the information you filled out.

Chapter 13 Plans in California

Every state has different plans. For example, in California, the repayment plan in Chapter 13 is based on the Official Form 113 Chapter 13 plan. The form is available on the United States Bankruptcy Court website. You will, however, need to use the Chapter 13 bankruptcy plan approved in your district. 

Here are some approved Chapter 13 repayment plans fast of December 2021 for the four districts in California:

These repayment plans have slight differences in formatting, but all factor in the same basic information. Note that these forms are regularly updated. So, check the court website to get the current version of the forms.

What is Included in a Chapter 13 Repayment Plan?

Bankruptcy laws vary from state to state. So, different bankruptcy districts might have different local forms for Chapter 13 payment plans. Here is a list of items included in the repayment plan based on federal forms.

Items in a simple payment plan include:

  • Notice to the creditors on their right to file a claim or object to the debtors filing bankruptcy 
  • Based on the Chapter 13 Means Test, the proposed amount and duration of payments under the repayment plan
  • How the payments will be made to the trustee. It can be directly or indirectly via payroll deduction order
  • How income tax refunds will be treated in the repayment plan
  • How various secured creditors will be treated- mortgage and car loan lenders
  • A detailed proposed repayment on how to go about past due payments and arrears on secured liens
  • Motion to value line- a request to the bankruptcy court to determine if the asset is worth less than the lien to make the portion an unsecured debt
  • Payment of non dischargeable debts in full
  • Motion to avoid liens
  • List of collateral being surrendered, e.g., giving up your car to repay a secured loan
  • How you will pay administrative fees
  • How general debts will be treated and the percentage of claims the creditors will receiver
  • Treatment of executory contracts and leases- some debtors opt to break a lease to stop making rent payments

There is a lot that is included, and we have just highlighted a few.

How Non-Standard Items are Treated in Chapter 13 Repayment Plan 

A Chapter 13 repayment plan has a provision for non-standard items. Your attorney might insert unique terms depending on your case to obtain confirmation of the repayment plan. 

Our explanation is broad, but you can read more on Chapter 13, Bankruptcy Basics, on the United States Courts' websites. They also have detailed information on the instructions for bankruptcy forms which you might find useful. 

Must I File Chapter 13 Bankruptcy with the Help of an Attorney?

No. You can choose to file Chapter 13 bankruptcy by yourself. However, Chapter 13 bankruptcies are more complicated than Chapter 7 and take longer to complete. They have a low success rate because a simple mistake can result in the bankruptcy court dismissing your case. 

A chapter 13 dismissal will have a negative impact on your future and live the automatic stay, resulting in creditors pursuing you, suing you, repossessing your car, or foreclosing your home. 

Therefore, working with a Chapter 13 bankruptcy attorney is best to avoid making mistakes and increase your chances of successful completion. 

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