How Much Will My Chapter 13 Plan Payment Be?

One of the first questions most of my Chapter 13 bankruptcy clients ask is, “How much will I have to pay the Chapter 13 bankruptcy Trustee?”

The answer isn’t always simple. Generally speaking, there are four primary ways this payment is determined.

First is the “Chapter 7 Liquidation Analysis“. This looks at what would happen if, instead of a Chapter 13, you filed a Chapter 7 and all of your assets were liquidated, or sold. (It doesn’t mean that this would happen, only that numbers are computed as if it did.) From this amount, you deduct any balance on secured debt, and any exemptions that you claim. Your unsecured creditors (UC’s) must be treated at least as well in your Chapter 13 case as they would be in this hypothetical Chapter 7.

For example, if you have a house worth $200,000 with a mortgage in the same amount, a car worth less than you owe on it, and household goods and furnishings that you can exempt, the Chapter 7 liquidation analysis results in your UC’s getting $0. In other words, this test wouldn’t require that they be paid anything.

If, on the other hand, if you also had a bank account with $50,000 in it, and you could only exempt $10,000, the liquidation analysis would result in your UC’s getting $40,000. This means that your Chapter 13 Plan would need to pay at least $40,000 to these creditors.

Next is the Means Test Calculation. Chapter 13 debtors must complete the bankruptcy document with the longest name, the “Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income.” For obvious reasons, this document is usually called the “Means Test” or the “Form 22.” A blog I wrote, Bankruptcy Eligibility and Median Family Income, discusses the requirements under the Means Test for determining distributions to UC’s. In most cases, this amount will be $0, but it may set a minimum payment.

Next is the Disposable Income Test. Basically, if you take your monthly household income, and subtract your regular monthly expenses (but not your payments to UC’s) and have a positive cashflow, you may be required to pay that amount as your Plan payment.

Finally, you have the Required Payments to Priority and Secured Creditors. Your Chapter 13 Plan will usually have to provide for the payment in full of priority debt (such as your bankruptcy attorney’s fees, domestic support arrearages, and taxes) as well as secured debt payments you’re making to catch up mortgage or car payments.

These four standards interact in different ways, depending on the details of your case and which state you live in (and the Court rulings interpreting these standards). It is usually not a DIY project, and using an experienced bankruptcy attorney to represent you during your Chapter 13 case is strongly recommended.