There are many aspects of Chapter 13 bankruptcy that are important to know and be aware of.
The purpose of this article is to explain how a Chapter 13 payment plan works and what goes in it. We also provide the Chapter 13 Bankruptcy Plan Payment Calculator. Our goal is to help you make the most informed decision about what debt relief option is best for.
The Chapter 13 bankruptcy is commonly referred to as a wage earner’s plan. It helps people with a consistent income create a structured plan to repay some or all of their debts. In this chapter, a debtor will propose a specific payment plan to make monthly payments to creditors over a 3 to 5 year period. If a debtor’s monthly income is below their state’s median level, the period of repayment should span a three year period, unless the court approves otherwise. If the income is over the state median, the plan should span over five years. Under a repayment timeline, creditors are prohibited from collections.
Knowing what Chapter 13 bankruptcy is, it is crucial to understand what happens in such a plan. Below are two examples of Chapter 13 payment plans. Note the figures that contribute to these plans:
1) Attorney Fees 2) Administrative Fees 3) Trustee Fees 4) Mortgage Payments (if applicable) 5) Auto Payments (if applicable) 6) Secured Payment (if applicable) 7) Disposable Income (if applicable)
We built the calculator below to help you estimate what your Chapter 13 plan payment may be. Please note that this is a rough estimate, but we do provide a more robust calculator to estimate your plan payment here.
This rough estimate is produced from the minimum payment estimate in a Chapter 13 plan. It does not include non-exempt assets, disposable income, or any other pertinent financial information. Your payment plan could be significantly increased if you have disposable income or assets that were not included in the estimate.
Debts in Arrears: 1) Automobile Debt: This is total debt past due on 1st and 2nd auto loans or fair market value. 2) Real Estate Debt: This is total debt past due on mortgage and on second mortgage. 3) Other Debt: This is balance on loans from personal property, tax debt from the IRS, state debt, school debt, local debt, and balance of alimony and child support.
Calculator does not consider: 1) Married individuals who file 2) Total amount of claim from death or personal injury due to driving under the influence 3) Total amount of lower priority debts (such as those in bankruptcy schedule E)
Calculator assumption: 1) $3500 legal fee 2) Trustee fee of 10% 3) Interest on secured claims 4) Plan with 60 month duration
While the bankruptcy court would like for you to pay back your creditors, if you are unable, they would still like for you to at least pay under a minimum plan payment. From these three forms used for Chapter 13 bankruptcies, you can determine whether you have disposable income to make payments to unsecured non-priority creditors.
The first form is a Chapter 13 calculation of your disposable income. Below is an image of the form. In this document, to determine if your income and expenses allow for you to pay back creditors, the IRS standard and location guidelines are used.
The second and third forms are the Schedule I: Your income (individuals) and the Schedule J: Your expenses, respectively. These forms let you report your own expenses. It is important to note that you need to put legitimate number in this form, as you may be required to present these documents to the court to verify your claims.
Each state has their own exemptions for what items or property are protected when filing for bankruptcy. However, these exemptions differ immensely from state to state. In the case that your equity in assets exceeds the amount your state allows to be exempted, you qualify to pay for a certain amount in your payment plan.
Such assets may include a house, an RV, a car, jet skies, a vacation home, etc. Consider Chapter 13 even if you have significant value in your assets because of the effects of Chapter 7 liquidation.
Aside from court exceptions, filing a proposal repayment plan is required when filing for a petition or 14 days from doing so. The court should receive the submission in order for it to be approved. The plan should include a plan for payments made to a trustee bi-weekly or bi-monthly. If the submitted plan is approved, it is the trustee’s responsibility to distribute payments according to the plan. This does mean that creditors will not always receive complete payment for their claims.
There are three claim types, under the US Courts: secured, unsecured, and priority. Secured claims are those in which the creditor reserves the right to take certain property from a debt if their debts remain unpaid. Unsecured claims are the opposite of secured claims; the creditor does not reserve the right to take property from the debtor should their debt remain unpaid. Finally, priority claims are “special” under bankruptcy law.
Priority claims are required to be paid completely, except for if an agreement is established with the creditor concerning the debtor’s priority claim. There is also one more exception under the US Courts.
Concerning unsecured claims, these are not required to be paid completely as slong is the disposable income paid exceeds the applicable commitment period. Additionally, unsecured creditors have to receive as much payment as they would otherwise receive if the claim had been liquidated under Chapter 7. For Chapter 13, disposable income is any income that exists aside from those needs for basic operation. The applicable commitment period is dependent on a debtor’s monthly income. As specified above, for families whose income is less than the state median, this period is 3 years. For families whose income is above the state median, the period is 5 years. This plan can always be shortened should the unsecured debt be paid more quickly.
Whether the repayment plan has been approved or not, within 30 days after filing, the trustee may begin receiving payments from a debtor. If any of the debtor’s payments are due before their repayment plan is approved, they should make substantial protection payment to the creditor directly, making sure to exclude the amount they would pay the trustee under their plan otherwise.
There are a few alternatives to Chapter 13 to consider as well, such as Debt Settlement, Debt Management, and Chapter 7 Bankruptcy. Keep in mind that each plan has benefits, drawbacks, and necessary qualifications. Using a spectrum measuring severity, the above options are listed from least severe to most severe in terms of debt relief options.