Chapter 13 Minimum Payment.

by Rachel Lynn Foley, Esq.

November 7, 2010

A minimum payment in a Chapter 13 Bankruptcy will vary from district to district depending on the local rules.  However, the minimum payment must cover what you must pay within the applicable commitment period.   Like many things in the law that answer to that question is ” it depends.”

What is the applicable commitment period?  The factor that will determine whether you must go 36 or 60 months is your income.  Does your income fall above or below the median income breaking point.  If you are below the breaking point your are below median and can go 36 to 60 months.  If you are above median than you must go 60 months unless allowed otherwise by a court order. 

Whether you are above median or below is just the first point in determining what your minimum payment will be.  Once you have determined the length of your Plan 36 or 60 months you will need to determine what MUST be paid within that specific period of time.  Are you paying taxes a vehicle, home, child support, attorney fees and/or an asset that is NOT protected under an exemption?

Let’s say that you are below median.  In my district you have the choice to go a minimum of 36 months but you may extend that time to 60 months. The debt you must is a tax debt of $10,000 plus a vehicle with a principal balance of $15,000.  These two debts in this example are the only two debts that must be paid.  The principal balance of the vehicle will be paid at the Trustee local interest rate, which in my district is 5.09%.

So for this math calculation you have $10,000 in tax debt + the principal of the vehicle of $15,000 + the 5.09% interest rate over 60 months.  That total equals $27,021.40.  You are not done yet.  You take this balance plus the trustee administration fee.  This figure also varies from district to district.  My Chapter 13 trustee is allowed to charge an 8% fee to make the payments each month.  

The easiest way to figure what must be paid is to take the total equalling $27,021.40 and multiply this by 8% and your final balance is $29,183.11 for this example.

So if your lucky enough to be able to choose 36 or 60 you can take the total balance divided by the number of months that you need to be in the Chapter 13.  If you go 60 months your payment will be $486.39.  If you go 36 months it will be $786.18 (keeping in mind the amortization schedule will take the vehicle principal at the trustee interest rate for 36 months plus the tax debt plus that total balance plus .08% divided by 36 months).  Keep in mind the maximum time you can be in a Chapter 13 Plan is 60 months per the law under 11 U.S.C. 1322(d).

Another factor to keep in mind is that the vehicle is accruing interest.  Just like in the non bankruptcy world if you do not make your vehicle payments the interest keeps accruing which increases your balance.  The same holds true during the bankruptcy.  It is critical that you make your Plan payment on time each and every month so that the interest accruing does not increase your balance.  The end result of an increased balance is that your monthly minimum payment will need to increase?  Why?  Because you only have a maximum of 60 months that you can payoff the balance of the debt due and owing.   Again this is the law under 11 U.S.C. 1322(d).

A common mistake of debtors is that they think that they get the house or vehicle for free.  Another common mistake is thinking that the judge must understand that you cannot make the payment and he/she will have to deal with it.  The judge will deal with it by either dismissing your case or allowing the creditor to remove the automatic stay that protects your assets and either foreclose on the home or reposes the vehicle.  

Bankruptcy does not allow you to get away scott free from paying your debts if you wish to keep secured assets.  You must pay to play in a Chapter 13 Bankruptcy. The minimum payment is just that. Is the minimum payment or the base of your Plan payment which means your payment maybe more. Talk to a qualified bankruptcy professional in your area to determine your specific payment.

Remember that knowledge is power and the more knowledge you have regarding what you must pay in a Chapter 13 the more power you will have in successfully completing your Chapter 13 Bankruptcy.

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Former Bankruptcy Attorney to the Kansas City UAW: Ford and GM workers, now assisting the general public in Missouri and Kansas with regaining financial control using the Bankruptcy Code. 816-472-HELP (4357).

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Last modified: November 7, 2010