“How Is My Chapter 13 Plan Payment Determined?”

16 Jun “How Is My Chapter 13 Plan Payment Determined?”

man asking holding question markThe most important thing my Chapter 13 clients want to know is how much their Chapter 13 Plan payment will be. They ask this question at our initial meeting, before their case is filed, and during the period before their Chapter 13 Plan is confirmed. Of course. It is probably the most important factor in whether their case will be a success.

Determining the amount of the payment is not always easy, particularly at the very beginning of the case. While I try to give a rough estimate, events can occur during the case that can change my estimate, sometimes significantly.

There are four tests that are used to determine the amount of the Chapter 13 Plan payment:

  1. The Chapter 13 Means Test (officially, the “Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period and Calculation of Your Disposable Income”);
  2. The Disposable Income Test;
  3. The Chapter 7 Liquidation Analysis Test; and
  4. The Required Payments Test

The Chapter 13 Means Test was imposed in 2005, with the stated purpose of determining whether their Plan would be 3 years or 5 years long, and to have an objective way to determine the amount of the payment. It is generally viewed as a time-consuming failure that does not fairly reflect a debtor’s ability to pay. Nevertheless, this 11-page calculation is one of the established four methods of determining your Chapter 13 Plan payment, provided your household income is above your state’s median income for a comparably sized family.

The Disposable Income Test is the only one of the four test that is explicitly based on ability to pay. You first calculate your net household income and subtract from it your actual reasonable monthly expenses. The resulting number–your “excess income”–is your Chapter 13 Plan payment. You do not include in this calculation a deduction for those debts that will be paid through the Chapter 13 case, such as mortgage arrearages, tax payments, and credit card bills.

In the Chapter 7 Liquidation Analysis Test, you look at how much your general unsecured creditors (typically credit cards, medical bills and personal loans) would receive in a hypothetical Chapter 7 case. In many cases, they would receive zero, because there are no non-exempt assets with equity, and creditors would get nothing in a Chapter 7 case.

The last test is the Required Payments Test. Usually, priority debt, such as recent taxes and domestic support obligations, must be paid in full during the course of the Chapter 13 case. Mortgage and other secured debt arrears must also be paid in full, along with unpaid attorney fees, trustee commissions and (in most cases) at least a nominal amount to the general unsecured creditors. Add these payments up, and you reach the Required Payments.

After having calculated each of these numbers, you pick the highest. That is your Plan payment. At least for the moment.

Many factors during your case can change this number. The amount of Proofs of Claim, changes in disposable income or assets can all affect which test will apply and how much will need to be paid.

This is not simple. Work closely with your attorney to help him or her have the information needed to calculate the Plan payment.

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Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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