What Factors Determine Chapter 13 Bankruptcy Plan Payments?

Learn about the disposable income calculation, debt repayment obligations, and other factors that determine your monthly payment into a Chapter 13 bankruptcy plan.

Most Chapter 13 debtors want to know: How much will I have to pay each month? And for how long? Chapter 13 debtors must make monthly payments over three to five years in a Chapter 13 plan or repayment plan. The number and amount of required plan payments depend on three factors:

  • the debtor’s monthly income
  • the amount of the debtor’s disposable income, and
  • whether the debtor’s income will cover all obligations required by bankruptcy law.

For more information about the repayment plan, see the articles in The Chapter 13 Repayment Plan.

Qualifying for Chapter 13: The Debtor’s Monthly Income

Only debtors with regular income are eligible to file under Chapter 13 bankruptcy. Regular income includes wages and commissions earned by a debtor in the ordinary course of employment. Regular income doesn’t include:

  • overtime pay or bonuses that a debtor receives on an occasional basis, and
  • child support payments.

The court determines the "commitment period," or length of the repayment plan by comparing the debtor’s monthly earnings to the median family income in the state where he or she lives. You can find your state’s median family income by visiting the U.S. Trustee website.

For debtors who earn less than the state median family income, the commitment period is three years. The plan length for debtors who make more than the state median family income is five years. The court will allow a shortened plan length if all unsecured creditors, such as credit card balances and medical bills, can be paid in full. A filer would need to pay all debt with the exception of long term debt, such as a home mortgage and student loans, in what bankruptcy lawyers informally call a 100% plan.

Calculating a Plan Payment: The Debtor’s "Disposable Income"

During the applicable commitment period, the debtor must make monthly plan payments equal to the amount of his or her disposable income. A debtor’s disposable income is the difference between his or her monthly earnings and the amount "reasonably expended" for his or her family's maintenance and support. Reasonable expenses include:

  • rent or mortgage payments
  • utility and telephone charges
  • food
  • clothing
  • medical bills and prescribed medications
  • health and disability insurance
  • motor vehicle and other transportation costs
  • taxes
  • child and elderly care
  • tuition and other educational expenses
  • child and spousal support payments, and
  • Chapter 13 trustee fees (generally, 10% of total plan payments).

Bankruptcy courts apply a means test to determine the reasonableness of expenses if the debtor earns more than the median family income in the state where he or she lives. The means test allows the debtor to use actual expenditures for some expenses, and expense amounts permitted under national and local standards issued by the Internal Revenue Service for others. Payments for housing and utilities can exceed the IRS’ local standards if the debtor demonstrates that they are reasonable and necessary.

Charitable contributions and job-related expenditures also can be deducted in calculating the amount of a debtor’s disposable income. You’ll want to be prepared to demonstrate a history of such payments. Expect the court to view new or recently increased expenses with skepticism.

Find out how to complete the disposable income form.

Administrative Expense Claims, Cure Obligations, and the Best Interests of Creditors’ Test

Determining a debtor’s plan payments often requires more than a mechanical calculation of disposable income. In many cases, the filer will have to make adjustments so that the debtor’s plan payments are sufficient to cover administrative expense claims and meet the Bankruptcy Code’s "best interests of creditors" test.

Administrative Expenses

Administrative expenses are costs incurred in connection with administering a bankruptcy case. Generally, the primary administrative expenses in a Chapter 13 case are legal fees owed to the debtor’s counsel and trustee fees owed to the United States Trustee. Administrative expenses have priority under the Bankruptcy Code. A debtor must ensure payment in full through the repayment plan.

Cure Obligations

Typically, a Chapter 13 debtor’s primary assets are his or her home and motor vehicle. Many Chapter 13 debtors file bankruptcy after defaulting on home mortgages or motor vehicle loans. Defaults on home mortgage and motor vehicle loans can be cured—or caught up—under Chapter 13, and spread out over the duration of the plan.

"Best Interests of Creditors" Test

A Chapter 13 plan cannot be confirmed unless it provides that unsecured creditors—those owed credit card obligations, medical bills, and the like—would get paid at least as much as they would receive in a Chapter 7 case.

In most Chapter 7 cases, unsecured creditors receive little or nothing. In some cases, however, unsecured creditors are entitled to at least a percentage return, because a trustee appointed in a Chapter 7 case would be able to sell assets and distribute the proceeds to creditors. The Chapter 13 trustee must pay that same amount Chapter 7 creditors would receive to creditors in Chapter 13.

In Chapter 13, however, the trustee doesn’t sell property. Instead, the debtor must have sufficient income to pay the equivalent amount through the repayment plan. You can determine this cost by adding up the value of property that can’t be protected with a bankruptcy exemption.

Learn more about the best interests of creditors test.

When a Debtor Can't Cover All Required Chapter 13 Payments

If the amount of your disposable income isn't enough each month to cover administrative expenses, cure obligations, and meet the best interests of creditors test, there are several options.

First, you can try to make adjustments to increase your disposable income or make other funds available. Some ways to do this include:

  • changing employment, or taking on additional work
  • selling assets
  • utilizing anticipated tax refunds, or reducing excessive withholdings, and
  • decreasing expenses.

Another way to increase plan payments for debtors who qualify for Chapter 7 is to extend the commitment period from three to up to five years.

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