Learn how we calculate the monthly Chapter 13 plan payment
When you work with us to file a Chapter 13 bankruptcy, we’ll create a repayment plan to propose to the bankruptcy trustee, the court, and your creditors. There are basically two factors that determine the type of plan and monthly payment amount:
- the amount of household income left over after subtracting allowable expenses, called “disposable income”
- Value of any property you can’t protect with an exemption, called “nonexempt assets”
If your income is within the limits of Ohio’s median income you can submit a three-year plan. Everyone else must select a five-year plan.
How We Calculate Disposable income
A Chapter 13 repayment plan must include allowances to fully pay these types of debt:
- If you’re behind on your mortgage, the arrearage
- If you have a car loan, any arrearage on the loan
- Priority debt, which includes unpaid taxes and unpaid domestic support obligations
Most debtors also must pay a percentage (or “dividend”) to the remaining creditors, which typically includes credit card bills, personal loans, medical bills and unpaid utility bills. This is known as unsecured debt.
We determine the amount you must pay unsecured creditors by subtracting your reasonable and necessary living expenses from your monthly income, like:
- Rent or mortgage
- Auto loan payments and maintenance costs
- Ordinary household expenses, like food, clothing and utilities
- Taxes and domestic support obligations
- Childcare costs
The remaining amount is considered “disposable income” and must be paid to unsecured creditors as part of the Chapter 13 repayment plan. The amount included in the plan for unsecured creditors is distributed on a pro-rated based, with each creditor receiving a percentage of the payment matching the percentage of the overall debt.
After a Chapter 13 repayment plan is completed, most remaining unsecured debt is discharged or eliminated. Exceptions include student loans and some interest on certain taxes– even though they are unsecured debt and are included in payments covered by disposable income – remaining balances must be paid after the case closes.
Please Note: this is a very simplified explanation. We recommend you seek competent counsel with an expert bankruptcy attorney for guidance. Contact Bankruptcy Attorney David Bhaerman for a free consultation to discuss your case.
How to Determine Nonexempt Property Payments
According to the bankruptcy code, unsecured creditors much receive as much as they would receive if you filed for Chapter 7 bankruptcy.
Determining that amount is not that easy. It’s determined in part by the value of your nonexempt property (assets that aren’t protected by a bankruptcy exemption) less cost to liquidate the property.
Debtors are allowed to exempt, or protect a certain amount of their property in a bankruptcy case. The debtor’s state, Ohio, determines the value and type of exempt property. Nonexempt property must be either sold for the benefit of creditors in a Chapter 7 case, or paid to creditors in a Chapter 13 repayment plan.
Determining how much nonexempt property you own will give you a rough idea of the minimum your unsecured creditors must receive in a Chapter 13 plan. It also will tell you how much you might lose in a Chapter 7 bankruptcy case.
Both Factors Apply in a Chapter 13 Case
Your disposable income and the amount of your nonexempt property will help determine your plan type. For best results, consult us to help determine the exact amount you will pay monthly in a Chapter 13 plan.
- Typical Repayment Plan – In many cases, debtors have some funds remaining after deducting allowed expenses from their income. The amount of disposable income remaining for unsecured creditors often is small.
- 0% Repayment Plan – In rare cases, the debtor will not have any disposable income available to pay unsecured creditors after priority and secured debt payments are covered. These debtors actually may qualify for a Chapter 7 bankruptcy but instead file Chapter 13 to keep their home or cars. A debtor can use a Chapter 13 bankruptcy to bring arrearages current on a mortgage or car loan and may not have to pay anything unsecured creditors. The debtor will receive a discharge for qualifying unsecured debt at the end of the repayment plan.
- 100% Repayment Plan – If your income is significantly higher than your reasonable and necessary living expenses, or when your nonexempt property value is more than the total amount of unsecured debt, and you wish to keep all the property, you may have to repay all of your owed debt.
The amount a debtor must pay to unsecured creditors depends on their overall financial snapshot. Bankruptcy attorneys, trustees and court staff often use the percentage a debtor is repaying to describe the plan. For example, “John is in a 25 percent plan.”