What is your estimated Chapter 13 repayment plan? This is a common question.
In this article, we provide the Chapter 13 Bankruptcy Payment Calculator to estimate your Chapter 13 repayment plan. We will also provide a Chapter 13 bankruptcy overview, the pros and cons, and alternatives to Chapter 13 bankruptcy. The goal is to help you make the most informed decision.
For a Chapter 13, your bankruptcy attorney or you propose a Chapter 13 repayment plan to pay back a portion or all of your debts. This is usually completed over a three or five-year period based on numerous factors in this type of bankruptcy. The results estimate of our Chapter 13 calculator below is based on the official US bankruptcy forms.
A Chapter 13 Bankruptcy is the chapter in the bankruptcy code that allows the debtors to adjust the debts in relation to his/her income in a Chapter 13 repayment plan. It allows the debtor to keep the property and pay debts usually over three to five years. The Chapter 13 calculator rough estimate considers debts that you want to pay for the property or things you want to keep and certain debts that you are legally obligated to pay. In addition, it also considers trustee fees and certain legal fees. Let's go through specific attributes about the Chapter 13 repayment plan.
The rough Chapter 13 calculator computes the minimum Chapter 13 plan payment estimate. The output does not consider disposable income, nonexempt assets, or other pertinent pieces of financial information. Your plan payment may be significantly higher if you have disposable income or assets that are not considered in the rough estimate.
This can be a great 2-minute estimate of what your minimum plan payment may be, but it does not go into as great of detail as the precise estimate.
The rough Chapter 13 Payment Calculator estimate considers the minimum plan payment that you would pay in a Chapter 13 payment plan. The precise estimate is a longer calculation. It considers additional factors to calculate a more precise Chapter 13 payment plan estimate because not everyone is eligible to pay the minimum. Additionally, it also allows you to compare your debt relief options.
What are the reasons why your plan payment would be more than the minimum payment? Let’s go through two common reasons why your plan payment would be more costly than the the minimum payment.
The bankruptcy court wants you to pay back your creditors. When you say you are unable to do so, the court wants to ensure that you can only pay the minimum plan payment. The court has three forms that are common for Chapter 13 bankruptcy. They determine whether you have disposable income to pay nonpriority unsecured creditors.
Most states have exemptions for what property or items are protected from bankruptcy. What is important to note is that each state varies greatly from what is exempt and the amounts of the exemption. If your equity in an asset exceeds the amount that the state allows to exempt, you would be liable to pay for some amount in your plan payment.
These assets include, but are not limited to, a house, a car, an RV, a vacation home, jet skis, etc. You may consider a Chapter 13 if you have significant value in such assets even if you qualify for a Chapter 7 because of the implication of a Chapter 7 liquidation bankruptcy.
The Precise Chapter 13 Payment Calculator above will also tell you whether you qualify for a Chapter 7 bankruptcy. Let's go through the differences between the two chapters of bankruptcy. The main difference between Chapter 7 and Chapter 13 bankruptcies is that all your debt is wiped out in Chapter 7 regardless of what you owe. For reference, student loans are generally not discharged in either type of bankruptcy. Experian provides an excellent Chapter 7 vs. Chapter 13 comparison, but I'd like to provide a summary of the differences between the two main bankruptcy types.
To qualify for Chapter 7, you must meet income guidelines based on means-testing. This information is determined by the Census Bureau and the Internal Revenue Service. These income guidelines are based on the income based on your family size and the state where you reside. The most recent Census Bureau Median Family Income By Family Size on or after May 1, 2020, and beyond can be found here. If you earn more than the median, the next step would be to determine whether you have enough left over to repay some of your debt. We created a Chapter 7 means test calculator for you to determine whether you qualify.
Chapter 13 is another way to get rid of your outstanding debt, but it takes much more time and is more involved. A Chapter 7 bankruptcy can be completed in under 1 year, while in contrast, a Chapter 13 bankruptcy can take up to five years. Furthermore, there are also limits as to how much debt you can include. Sometimes people choose to do a Chapter 13 after Chapter 7 because of the time required between bankruptcties.
When you file a Chapter 13 bankruptcy, it can be similar to a structured settlement plan in a debt settlement. This is because likewise, you have to pay some or all of your debts. Typically the amount that you pay depends on the type of debts included in the bankruptcy and how much you owe to your creditors. There is also a waterfall of payment priority with the first payments made to your lawyer(s) and the lowest priority to your unsecured creditors.
The benefit of a Chapter 13 bankruptcy is that you may get to keep some of your assets, as there are some protections by state.
I spent a great deal of time introducing the Chapter 13 calculator and how it works. Let's say you go through the calculations and realize that a Chapter 13 bankruptcy is right for you. I would like to make you informed about the Chapter 13 process from beginning to end because the process is much longer than a Chapter 7 bankruptcy. Much of this information can also be found on the US Government Website in the article titled, Chapter 13 - Bankruptcy Basics.
Chapter 13 Bankruptcy was created for the average individual, in order to give them a path to paying all or a fraction of their debts. The bankruptcy process features a repayment plan proposed by the debtor to pay creditors over a 3 to 5 year period. Typically, if your monthly income is less than the state’s median, the plan is over a 3 year period. If it is above the state median, the plan will be configured over a 5 year period, the maximum time allotted under this specific debt relief option. In any case, the law forbids creditors from charging you while you are under a repayment plan.
Chapter 13 offers more advantages to the individual in comparison with Chapter 7 bankruptcy. For some, the biggest advantage of this bankruptcy process is that homes can be saved from foreclosure. In other words, individuals may prevent foreclosure proceedings from occurring as long as they still make their mortgage payments during the time of repayment. Another major advantage is that individuals with secured debt can pay it over the course of the process, which may lower the cost of payments.
For whom it applies, Chapter 13 protects co-debtors who are partly responsible for consumer debts. Last but not least, payments under a Chapter 13 bankruptcy plan are given to a trustee rather than to the creditors themselves; it is a Chapter 13 trustee who then distributes the payments to your creditors. During the bankruptcy period, the debtor and creditor do not directly interact.
Any individual is eligible to receive Chapter 13 bankruptcy if they meet the following criteria: “the individual's unsecured debts are less than $419,275 and secured debts are less than $1,257,850” (US Courts). These are considered Chapter 13 debt limits, and these were last updated on April 1, 2019. The next update is scheduled for 3 years from that date.. These amounts rarely shift. Lastly, corporations and partnerships are not eligible for Chapter 13 in any case.
As with everything, there are a few exceptions to individuals who are eligible for Chapter 13. It is not possible for individuals who within the past 180 days have filed for bankruptcy but were discharged due to things, such as failure to appear in court or a creditor went through the bankruptcy court to recover property under lien from the debtor. Additionally, individuals who file for Chapter 13 bankruptcy or any other form of bankruptcy cannot do so if, in the preceding 180 days prior to filing, they have not received credit counseling. There are exceptions to this criterion when the U.S. trustee determines that there are not enough places that can provide proper counseling to the debtor. If a debt management plan is created during a credit counseling session, it must also be filed to the court.
The Chapter 13 process starts by filing at a bankruptcy court in the individual’s area of residence. Excluding any exceptions, the following information is also required to be given to the court at the time of filing: “(1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. Fed. R. Bankr. P. 1007(b)” (US Courts). Additionally, the individual must file proof of credit counseling and a copy of a debt repayment plan, if any was made, proof of payment from employers, if any was received within 60 days prior to filing, a statement of monthly net income, including information about whether your income or expenses are might increase, and lastly, a record of the individual’s interest in federal or state education or tuition accounts, if any. The Chapter 13 trustee must receive copies of any of the debtor’s tax returns from the “most recent tax year”, as well as a copy of any returns made during the time of bankruptcy. Married individuals can either file a joint or individual petition.
There is a $235 case filing fee as well as a $75 administrative fee that is to be paid to a court clerk upon filing. However, with permission from the court, both of these payments can be made in up to 4 installments that must be made within 120 days of filing. This 120-day time frame can be extended by the court as long as it is paid before 180 days have passed. When a joint petition is filed, the fee is only charged once. Dismissal of the case may result in individuals who fail to pay these fees.
According to the US Courts, in order to properly complete the Official Bankruptcy Forms, the debtor must provide the following information:
For married individuals, the individual who is filing must present their spouse’s information regardless of whether their spouse is filing or they are filing a joint petition. This is required because the information is used by the court to evaluate the household’s financial situation.
Once an individual has filed for Chapter 13, they are assigned an impartial trustee who will “administer” the case for them. The trustee will both evaluate the case and collect payments from the debtor to give to the creditor.
Filing places a hold on most collection actions for both the debtor and their property. There are exceptions to what this does not apply to, and the holder may only be effective for a short period of time. As long as this hold is in place, creditors may not initiate lawsuits, request payments, or make phone calls to the debtor. The bankruptcy clerk will give notice of a debtor has filed for bankruptcy to all the creditors that were listed when they filed. Chapter 13 also places a hold on the ability creditors have to collect consumer debt from “co-debtors”. These are debts that were obtained from loans for personal or household use.
As previously mentioned, filing for Chapter 13 may prevent a home from being foreclosed; in fact, as soon as an individual begins the filing process, an automatic stay is applied to any foreclosure proceeding. Payments that were past due until that point can be brought back “over a reasonable period of time”. However, foreclosure can still happen if the mortgage company completes the foreclosure sale before the individual has filed for a petition or if the debtor fails to make their mortgage payments after filing.
21 to 50 days following the debtor filing for bankruptcy, a Chapter 13 trustee will hold a meeting for creditors. During this time, the debtor is placed under oath, and both the creditor and debtor may ask each other questions. It is required that debtor attend this meeting and answer any questions that creditors may have concerning “his or her financial affairs and the proposed terms of the plan” (US Courts). If a married couple has filed a joint petition, they are both required to attend the meeting. Bankruptcy judges are not allowed to attend this meeting to maintain their “independent judgment”. Any problems with the plan are usually resolved during or shortly after the meeting and things typically run smoothly if the petition and plan are completed properly, with the trustee having been consulted before the meeting.
Under Chapter 13, unsecured creditors may file their claims within 90 days from the first set meeting date with creditors; a governmental unit has 180 days to do so.
Following the meeting with creditors, the debtor, their trustee, and any creditors who choose to do so come to court for a hearing on the debtor’s repayment plan.
Excluding exceptions made by the court, the proposal of a repayment plan is required when filing a petition or within 14 days of doing so. This plan must be submitted for the court to approve and must include a proposal of payments to be made to the trustee in biweekly or monthly installments. Should the plan be approved, the trustee will distribute these payments in accordance with what the plan describes, which sometimes means the creditors will not receive complete repayment regarding their claims.
According to the US Courts, there are three types of claims: priority, secured, and unsecured. Priority claims are claims that are made “special” by bankruptcy law, “such as most taxes and the costs of bankruptcy proceeding”. Secured claims are claims in which the creditor has the right to take back certain property from the debtor should their debts remain unpaid. The opposite of secured claims, unsecured claims are those for which the creditor does not have the right to take property from the debtor should there debts remain unpaid.
Unless otherwise agreed on by a creditor for an individual’s priority claim, priority claims are required to be completely paid, as well as one other exception specified by the US Courts.
Unsecured claims do not have to be completely paid as long as the “disposable income” is paid over the “applicable commitment period” and unsecured creditors receive as much payment as they would should the claim be liquidated under Chapter 7. Under Chapter 13, disposable income is income aside from costs for the debtor’s basic needs. If the debtor has a business, disposable income counts as the funds aside from those needed for basic operational funds. The “applicable commitment period” depends on the debtor’s monthly income. The duration of this period is 3 years for those whose monthly income is less than the state median for a family of the same size, and 5 years for those with a monthly income above the state median for a family of the same size. Of course, the plan can be shorter than the applicable commitment period if the unsecured debt is paid in less time.
Within 30 days of filing, whether the repayment plan has been approved or not, the debtor may begin giving payments to a trustee. If any payments (secured or from lease) come due before the plan is approved, the debtor should make substantiated protection payments directly to the creditor, subtracting the amount they would otherwise have paid the trustee under their plan.
Within 40 days of the meeting with creditors, the bankruptcy court must hold a confirmation hearing to determine whether the plan abides by the Bankruptcy Code and is feasible for the debtor. Creditors will receive a 28-day notice of this confirmation hearing and may object to it. Common reasons for objection are that the payment they would receive under this plan is less than what they would receive through liquidation under Chapter 7 or that the plan does not fully distribute the debtor’s disposable income over the course of the repayment period.
As soon as the plan is confirmed by the court, the Chapter 13 trustee may start the distribution of funds to creditors. If the plan is rejected, the debtor may refile a revised plan or may convert it to a Chapter 7 liquidation case. If the court rejects both the original and revised plan, dismissing the case, the trustee has permission from the court to use any funds needed for costs but they must return all the remaining funds to the debtor.
Circumstances make change a debtor’s ability to complete payments under their plan. This can result from a creditor’s objection to the plan or from the debtor’s failure to include a full list of their creditors. If this occurs, the plan can be modified before or after filing. Request for modification can be made by the debtor, trustee, or an unsecured creditor.
A confirmed repayment plan binds both the debtor and their creditors. As soon as the plan is approved by the court, it is the responsibility of the debtor to make sure the plan succeeds. Meaning they must make direct payments to the trustee or through payroll deduction. It is crucial that the individual does not obtain any new debt because it could skew their ability to complete the repayment plan successfully. Concerning making payments through payroll deductions, this method is a good way of making sure payments are made on time.
In any case, in which payments are not made on time, the case may receive a dismissal or be liquidated under Chapter 7 bankruptcy. This may also be the case if the debtor fails to make any domestic support payments or required payment for taxes after filing.
As the scope of Chapter 13 Discharge has recently had many changes to it, it is always best to consult a legal counsel regarding discharge prior to filing.
A debtor receives a discharge after having completed all their payments under their Chapter 13 repayment plan. They also must have completed all domestic support payments, have not received a discharge previously within a certain time frame, and lastly after having completed a course on financial management. A discharge will not be officially entered by the court until following notice and a hearing, they are sure that there is no potential proceeding that might limit the individual’s bankruptcy homestead exemption.
A Chapter 13 discharge releases the debtor from all debts within the plan or “disallowed,” with few exceptions. Following a discharge, creditors who have received payments for claims either in full or in part may not take legal charge or collect from the debtor any longer.
Generally, all debts are discharged under Chapter 13 but there are exceptions. These include debts for a home mortgage, child support in arrears for Chapter 13, federal educational loans, or certain taxes. Depending on the extent to which they are paid under a Chapter 13 plan, the debtor is still responsible for these debts following a discharge. Debts for things such as fraud will be discharged unless a creditor files and prevails to have nondischargeable.
Generally, a Chapter 13 discharge is much broader than that of Chapter 7, and it includes discharge from debts that would otherwise not be discharged under Chapter 7.
Once a plan has been confirmed, a situation may arise that renders a debtor unable to complete their repayment plan. In such cases, the individual may apply to the court for a “hardship discharge”. They may only receive such a discharge if the situation which has caused their inability to complete the plan is out of their control if the creditors have received as much as they would if it were a Chapter 7 liquidation case, and lastly if modifying the plan is not possible. Typically injury or illness that prevents the employment required to complete their plan is a common reason for discharge. Chapter 13 hardship discharge is more limited than a regular Chapter 13 discharge and does not apply to debts that are not discharged under a Chapter 7 bankruptcy discharge (see specifications here).
It's helpful to compare your debt settlement vs bankruptcy plan payments because each are viable debt relief options. Below is a breakdown of the pros and cons of debt settlement vs bankruptcy with estimated positive or negative weighting for each of the different options.
There are a few alternative options that many folks consider as an alternative to a Chapter 13 bankruptcy.
Of course, each option has its own pros and cons and some require qualification. Using a severity spectrum, we estimate the least severe to most severe debt relief options.
We would love for you to try our free Chapter 13 Payment Calculator to estimate your Chapter 13 payment plan to understand whether a Chapter 13 Bankruptcy may be a good option for you.
There are many considerations to consider whether to pursue a Chapter 13 bankruptcy. Before you sign the dotted line, estimate your Chapter 13 plan payment.