Payments 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 may file for Chapter 13 bankruptcy and develop a new plan to repay your debts, called the Chapter 13 repayment plan.
Under Chapter 13, you propose a specific payment plan that works for you. You then make monthly payments to pay your debt over three to five years. 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 collections. Instead, the payments you make will be passed on to your creditors by your trustee.
You have full legal protection from creditors once you file the bankruptcy. However, remember that the Chapter 13 plan may increase if your income increases, so you may end up paying the full debt back.
Before filing for Chapter 13 bankruptcy, it is essential to research and understand what makes up the repayment plan. Here are the 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 may include some or all of the above payments depending on the practices in your area. To estimate your plan payment, use a Chapter 13 bankruptcy calculator. (See below)
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, your payment plan will significantly increase if you have disposable income or assets not included in the estimate. 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
Calculator assumptions:
- The trustee charges a 10% fee
- Average legal fee in your state
- The maximum duration is 60 months
- There is interest in secured claims
Why Your Chapter 13 Payment Plan May Be Above the Minimum
It could increase your payments if you have a disposable income when paying back your Chapter 13 bankruptcy. The role of the bankruptcy court is to ensure you pay back creditors. So, when filling out forms for 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. To determine disposable income, IRS standards, and state guidelines are used to calculate your income after paying necessary expenses like rent, mortgage, food, medical insurance, etc..
Second, you will need to fill out Schedule I: Income; third, you will need to fill out 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 Exceeds State Exemptions
Every state has exemptions for assets that can be protected when one files for bankruptcy. If the equity in your investments is more than the state exemption, you may 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, consider filing Chapter 13 despite having significant value in your assets.
An Overview of the Chapter 13 Plan Process
Other than court exceptions, you must file a proposed repayment plan when filing a bankruptcy petition or 14 days after filing. Your proposed repayment plan should include bi-weekly or monthly payments to a trustee. 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, who will submit claims. There are three main types of claims: priority, secured, and unsecured.
A priority claim is a type of claim you must pay in full unless you establish an agreement with a creditor. 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 without collateral; thus, the creditor does not have the right to take assets from the debt if they default.
You may not need to pay unsecured claims in full when filing for bankruptcy. However, this will depend on your disposable income. If your disposable income is within the applicable commitment period, you may not need to pay the unsecured debts fully.
Unsecured creditors should receive as much payment as they would if you had filed for Chapter 7 bankruptcy. As discussed earlier, the applicable commitment period to your Chapter 13 bankruptcy period depends on your monthly income. If your income exceeds the state median, your repayment may be five years. However, you can shorten the plan to clear your debts more quickly. Please note this is only true if the debtor pays his unsecured debts in full. If not, he can't shorten his plan.
After filing for bankruptcy, you can pay the trustee within 30 days before the court approves your repayment plan. Some courts allow the debtor to pick and choose which debts the Trustee will pay. Other courts require all unsecured creditors to be paid by the trustee. However, if a trustee is making the payments, then those payments are considered adequate protection payments regardless of when they contractually become due.
Alternatives to Chapter 13 Plan
If you are unsure if the Chapter 13 plan is best for you, you may consider taking a "Should I File for Bankruptcy" Quiz or Ascend's free Chapter 13 calculator. This can help you determine whether or not bankruptcy is right for you. You can also consider other alternatives, such as Chapter 7 bankruptcy, debt settlement, and debt management. Each plan has unique qualifications you must meet and offers distinct benefits and drawbacks.
