An overview of the calculations used to determine the payments in a Chapter 13 bankruptcy case.
In Chapter 13 bankruptcy, filers propose a repayment plan to repay some or all debts over three to five years. This article explains how to determine the amount you'd pay in a Chapter 13 monthly payment.
You can also estimate your minimum Chapter 13 payment using our Chapter 13 payment calculator. You'll find the link below.
How Long Will Your Chapter 13 Repayment Plan Last?
Chapter 13 plans can be 36 months, 60 months, or even less, if you're paying back all of your debts except for long-term debts like mortgages and student loans). If you're not repaying everything you owe, you'll pay into a 36-month (three years) or 60-month (five years) plan. The plan length will depend on whether your income is above or below your state's median income for your household's size.
If your income is below the median, your plan can usually be anywhere from 36 to 60 months long. Some below-median filers want to stretch the payments over 60 months to reduce the monthly payment to an amount they can afford.
If you have above median income, you'll typically pay into a 60-month plan (but some courts allow above-median debtors to propose a shorter plan if they have no disposable income).
You can find the median income in your state on the U.S. Trustee's website at www.justice.gov/ust (Choose "Means Testing Information," choose the correct date range, and then choose "Median Family Income Based on State/Territory and Family Size.")
Figuring Out Your Minimum Monthly Chapter 13 Payment
Some debts must be repaid in full through your repayment plan. You must propose a plan that pays off all these debts within 60 months (or less if you qualify for a shorter payment period), regardless of your income and expenses. These debts include the following (instructions assume you're using the Chapter 13 Bankruptcy Payment Calculator):
Priority Debts
Obligations called "priority debts" are considered too important to be discharged in bankruptcy and must be repaid fully in Chapter 13 bankruptcy. Common examples of priority debts include back child support, alimony, and recently-incurred taxes. Enter the amount of all your priority debts in the calculator where indicated.
Mortgage Arrears
If you're behind on your mortgage and want to keep your house, you must pay off all arrears (owed as of the filing date) through your repayment plan. Enter all applicable mortgage arrears in the calculator where indicated.
If you plan to surrender your house to the lender, you don't have to repay the arrears entirely in bankruptcy. Instead, the mortgage balance will be included as a general unsecured debt and likely be paid far less than the amount owed.
You can also list your second mortgage (or another junior lien) as a general unsecured debt if you are surrendering the home or can eliminate the junior lien in your Chapter 13 through lien stripping (this isn't easy to do, so be sure you understand the requirements).
Mortgage Payment
If you're keeping your house, you'll need enough income to stay current on the monthly payment. Hopefully, your jurisdiction will let you pay it outside of the plan so you don't pay the trustee an additional 10% fee. Most will let you pay it yourself if you're not late on the payment when you file. If you're behind, you might have to include your monthly mortgage payment in your Chapter 13 plan payment.
When entering figures into the calculator, don't include your monthly mortgage payment. However, don't forget about it when determining whether you can afford your monthly living expenses and Chapter 13 payment.
Learn more about how Chapter 13 bankruptcy affects mortgages and foreclosure.
Car Loans or Other Secured Debts You'll Pay Through Your Chapter 13 Plan
If you're behind on your car loan or another secured debt other than your mortgage and want to keep the property, you'll pay the arrears through your plan. You'll also pay your monthly payment (although you could get a break on the interest amount). Unless you intend to surrender the property, you'll enter the amount you'd pay over the five years into the calculator, assuming your plan isn't for a shorter period. (Don't worry about whether your jurisdiction requires you to pay the amount inside or outside the plan—you'll have to have enough income to pay it either way.)
If you owe less than five years on the car note—as most people do—you'll end up paying off your car through your Chapter 13 plan, which most people find a pleasant result. Long-term secured debts lasting over five years (and student loans) don't need to be repaid fully in Chapter 13. So if you owe six or seven years on the loan, you might have a balance remaining at the end of your plan.
You might qualify to reduce or "cram down" the amount owed on your car loan or another secured debt to the property's actual value through your repayment plan. In that case, you'd include only the property value in your calculation for all secured debts you intend to cram down.
Interesting note. You can use a cramdown on rental or vacation property, but not your primary residence. The only catch is you must repay the entire cramdown balance through the plan, something most bankruptcy filers can't afford to do.
Administrative Fees and Interest Charges
Chapter 13 trustees get paid by taking a percentage of the plan payment amounts paid to creditors. This percentage varies depending on where you live but can be up to 10%.
Also, filers typically pay interest on secured claims paid through the plan. The required interest rate can vary depending on the type of claim and the rules in your jurisdiction. But you might be able to pay as low as the national prime rate plus 1% to 3%. A local bankruptcy lawyer can tell you the current interest rate paid in Chapter 13 plans.
Making Regular Monthly Payments on Loans
As mentioned throughout this article, if you want to keep your home, car, or other secured debts, you'll have to keep making your regular monthly payments during your plan period. Some courts might require you to make these monthly payments through your plan.
If you don't include the monthly secured payment in the calculator, at the end of your calculation, you'll want to add it in along with other monthly expenses like food, utilities, childcare, and other monthly bills. This step will help determine whether you can afford the required monthly payment. Just don't include anything twice.
When Your Chapter 13 Repayment Plan Payment Will Be Higher: Disposable Income and Nonexempt Property
The debts discussed above calculate your minimum Chapter 13 plan payment. However, you might be required to pay more. In fact, your monthly plan payment can be significantly higher than the minimum payment calculated above, depending on how much you must pay your nonpriority unsecured debts, such as credit cards and medical bills.
As a rule of thumb, your nonpriority unsecured creditors are entitled to receive at least as much as they would have if you had filed for Chapter 7 bankruptcy. So, essentially (this isn't exact because it's a complicated calculation), most filers will pay the greater of their disposable income or the value of your nonexempt property (the amount you can't protect with a bankruptcy exemption).
How to Calculate Your Disposable Income
Start by completing the Chapter 13 means test using the following forms: Chapter 13 Statement of Your Current Monthly Income, and Calculation of Commitment Period (Form 122C–1) and Chapter 13 Calculation of Your Disposable Income (Form 122C-2). The forms are on the U.S. Courts bankruptcy form website.
After completing the Chapter 13 means test, if you end up with a positive monthly disposable income figure, add that to your minimum plan payment calculated above. You must pay this amount towards your nonpriority unsecured debts each month.
But you might need to pay even more, which we explain in the next step.
What If You Have Nonexempt Property?
Chapter 13 bankruptcy requires you to pay your nonpriority unsecured creditors at least as much as they would have received if you had filed a Chapter 7 bankruptcy. You must pay an amount equal to the value of your nonexempt property.
If you can't exempt all of your property, divide the value of the nonexempt portion by the number of months in your repayment plan and add it to the minimum monthly payment calculated above.
Consult a Bankruptcy Attorney If You Need Help
Calculating and proposing a feasible Chapter 13 repayment plan is a complicated process that can't be explained with 100% accuracy in a short article. The best this article can do is provide a minimum monthly payment estimate based on generalized figures.
You'll want to talk with a knowledgeable bankruptcy attorney familiar with your jurisdiction's rules and equipped with a Chapter 13 software program to obtain more specific plan payment information.
For more information on how to find the right attorney, see our topic area on Hiring and Working With a Bankruptcy Lawyer.
