Chapter 13 Payment Plan Example

This article is for informational purposes only. Ascend does not provide legal advice, and are not attorneys. If you'd like to speak with a bankruptcy attorney that serves your city, you can speak with one in a free consultation.

Chapter 13 can feel very overwhelming at first. Especially when you start looking at how the payment plan actually works.

In this article, I am going to break down what actually goes into a Chapter 13 payment plan and what goes into determining your monthly payment. If you don't want to read the whole thing, or want an idea now, you can also take a 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 you.

You can estimate your Chapter 13 plan payment here.

Chapter 13 bankruptcy is often called a "wage earner’s plan" because it's designed for people with consistent income. In Chapter 13, you propose a plan to repay some (or sometimes all) of your debts over 3 to 5 years. 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 above the state median, the plan should span 5 years. During that repayment period, creditors are generally not allowed to continue 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. Here are the main things that usually make up a Chapter 13 payment:

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)

Picture of Chapter 13 Plan Payment estimate

What is an Estimate of Your Chapter 13 Plan Payment?

We also built a Chapter 13 calculator to help you estimate what your monthly payment might look like. Please note that this is a rough estimate; we also provide a more robust calculator to estimate your plan payment here. Your payment isn't just going toward your debts; it may also cover trustee and attorney fees, which can be thousands of dollars.

What Goes into the Chapter 13 Payment Plan

The calculator gives you a baseline estimate of what the minimum plan payment might be. For example, using a Chapter 13 calculator can also show you whether it's an estimate for a 3- or 5-year plan. It does not account for things like non-exempt assets or additional disposable income that could increase your payment. Your payment plan could be significantly increased if you have disposable income or assets that were not included in the estimate.

Debts in Arrears (such as child support):

1) Automobile Debt: This is the total debt past due on 1st and 2nd auto loans or the fair market value.

2) Real Estate Debt: This is the total debt past due on the mortgage and the second mortgage.

3) Other Debt: This is a balance on loans from personal property, tax debt from the IRS, state debt, school debt, local debt, and the balance of alimony and child support.

The 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

You have disposable income:

Does your bankruptcy filing show disposable income? While the bankruptcy court would like you to pay back your creditors, if you are unable, they would still like you to at least pay 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 bankruptcy form is a Chapter 13 calculation of your disposable income. Below is an image of the form. In this document, the IRS standard and location guidelines are used to determine whether your income and expenses allow you to pay creditors.

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 use accurate numbers here because the court may require documentation to verify them.

Picture of the Official US Bankruptcy Form for Chapter 13 Plan Payment

You have equity in assets that exceed state exemptions:

Each state has its own bankruptcy exemptions that determine which property is protected when filing for bankruptcy. However, these exemptions differ immensely from state to state. If you have equity that exceeds your state's exemption limits, that excess value may increase your required plan payment.

Such assets may include a house, an RV, a car, jet skis, or a vacation home. Consider Chapter 13 even if you have significant value in your assets because of the effects of Chapter 7 liquidation. You can take a Chapter 7 means test calculator to estimate both qualification and the cost to file for bankruptcy. Please note that you use gross income for the bankruptcy means test and that all income may not apply.

How the Chapter 13 Plan Process Works

When you file Chapter 13, you must submit a proposed repayment plan either with your petition or within 14 days. The court should receive the submission in order for it to be approved. The plan should include a payment schedule for payments made to a trustee, bi-weekly or bi-monthly. If the submitted plan is approved, the trustee is responsible for distributing payments in accordance with the plan. This does not mean that creditors will always receive full payment for their claims.

In Chapter 13, debts are generally divided into three categories: secured, unsecured, and priority. Secured claims are those in which the creditor reserves the right to take certain property from the debtor if the debtor's debts remain unpaid. Unsecured claims are the opposite of secured claims; the creditor does not reserve the right to seize the debtor's property if the debt remains unpaid. Finally, priority claims are “special” under bankruptcy law.

Priority debts usually must be paid in full during your plan, unless the creditor agrees otherwise. There is also one more exception under the US Courts.

Concerning unsecured claims, they need not be paid in full so long as the disposable income paid exceeds the applicable commitment period. Additionally, unsecured creditors must receive the same amount they would have received if the claim had been liquidated under Chapter 7. For Chapter 13, disposable income is any income that exists beyond basic operating expenses. 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 off 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 payments to the creditor directly, making sure to exclude the amount they would pay the trustee under their plan otherwise.

How the Chapter 13 Plan Process Works

There are a few alternatives to Chapter 13 to consider, such as Debt Settlement, Debt Management, and Chapter 7 Bankruptcy. Keep in mind that each plan has benefits, drawbacks, and necessary qualifications.

Seeing a real-world example can help you decide whether Chapter 13 makes sense for your situation, and whether the payment would actually be manageable while avoiding Chapter 13 bankruptcy horror stories.

These options range from less aggressive debt solutions to more serious forms of relief, such as bankruptcy.