Figuring Out the Monthly Payment in a Chapter 13 Case — What’s It All About?

by Craig Andresen, Minneapolis, MN, Bankruptcy Attorney

August 29, 2009

How is the monthly payment calculated in a chapter 13 bankruptcy case?  For most, the monthly payment under a chapter 13 plan consists of what the debtor can afford to pay, after paying all of the monthly living expenses which are necessary to maintain a normal middle class type lifestyle.

If you thought chapter 13 involved a punishing regimen of sackcloth and ashes, with Minute Rice for breakfast, lunch and dinner, go back and read the preceding paragraph again.  The entire premise behind a chapter 13 debt repayment plan is that the debtor pays what he or she can afford, within reason, for either three or five years.  At the end of the case, all the remaining unsecured debt balances are discharged, even if the debts have only been partially repaid.  This means that just like in a chapter 7 bankruptcy, a chapter 13 will almost certainly resolve the debtor’s problems with unsecured debts.

If you’re thinking about filing a chapter 13 case, and you want to calculate your monthly payment before you meet with a lawyer, here’s how you can make a quick, preliminary estimate of your payment.

First, determine your average net monthly income, which means gross income minus all your tax withholding and other deductions, such as pension or health insurance.

Second, add up all your monthly living expenses, such as rent or mortgage, car payments, utilities, insurance of all kinds, gasoline and car maintenance, food, clothing, home maintenance, cleaning supplies, children’s school lunches, and all your other living expenses.

Leave out your payments on credit cards and other unsecured debts, because those will be paid, in part or in full, through the chapter 13 plan.

Third, leave out your payments for your motorcycle, ATV, or Lake Tahoe condominium.  The court is not likely to allow payments to be made on luxury items while you’re in a chapter 13 case.  The silver lining is that at the end of the case, the unpaid portion of your unsecured debts will be discharged, just like in a chapter 7 case.

Fourth, subtract all your living expenses from your net monthly income.  This is what you will have pay each month to the chapter 13 trustee — and you can see that it’s a payment you can afford.  After all, the monthly payment is based on your paying what is left over after you pay all your living expenses.  Who said chapter 13 was so bad?  The fact is, usually it’s not bad at all.

Some chapter 13 cases, however, may involve the payment of mortgage arrearages or back taxes, or other priority debts.  It is also possible that some high-earning debtors may be subject to the bankruptcy “means test.”  These factors can result in a chapter 13 payment higher than might be predicted based upon simply subtracting living expenses from monthly income.  Consult with an experienced bankruptcy lawyer to find out how much you would have to pay each month into a chapter 13 plan.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.

Last modified: February 16, 2013