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 a Chapter 13 repayment plan.  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)

What is an Estimate of Your Chapter 13 Plan Payment?

A Chapter 13 calculator 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. For example, your Chapter 13 repayment plan example may include trustee fees and attorney fees. For example, Chapter 13 trustee fees can be thousands of dollars.

What Goes into the Chapter 13 Payment Plan

The rough Chapter 13 calculator is produced from the minimum payment estimate in a Chapter 13 plan. For example, using a Chapter 13 calculator can also show you whether it’s a 3 or 5-year plan estimate. 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 (such as child support):   

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 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 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 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 bankruptcy 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 numbers in this form, as you may be required to present these documents to the court to verify your claims.

You have equity in assets that exceed state exemptions:

Each state has its own bankruptcy 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 skis, a vacation home, etc. 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 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

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 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 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 long as 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 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 as well, such as Debt Settlement, Debt Management, and Chapter 7 Bankruptcy. Keep in mind that each plan has benefits, drawbacks, and necessary qualifications.

Hopefully, a Chapter 13 repayment plan example that is specific to your data can help you determine whether Chapter 13 is worth it and whether you can avoid Chapter 13 bankruptcy horror stories.

Using a spectrum measuring severity, the above options are listed from least severe to most severe in terms of debt relief options.