23 Apr How Is My Chapter 13 Plan Payment Figured?
How much will my chapter 13 plan payment be? Understandably, this is the question that figures prominently in people’s minds as they contemplate a chapter 13 bankruptcy filing.
While plan payments can often be projected with a reasonable degree of accuracy, there is a lot that goes into figuring what it will be. There are several “tests” that are often interrelated yet also independent of each other to determine how much you must pay in a chapter 13 plan.
Projected Disposable Income test: This test generally applies to debtors whose income exceeds the state median income where they live. If your income exceeds the median income, your expenses are figured according to the “means test” using IRS guidelines and other complex formulations to arrive at a figure that, in theory, you should have available to pay to unsecured creditors each month.
Best Interests of Creditors Test: If you own assets that exceed the value that you may exempt and you wish to keep those assets, you will be required to pay the excess value of those assets to your unsecured creditors over the life of your plan. For example, in North Carolina, you may exempt up to $3,500.00 in equity in one motor vehicle. Assuming no other exemptions apply, if your car is worth $10,000.00, you will be required to pay $6,500.00 which is the excess equity that you cannot exempt for the benefit of your unsecured creditors. This represents what your creditors would have gotten in a chapter 7 liquidation.
Secured Claims: If you have a secured claim, that is, a debt that is secured by collateral and you put that claim in your plan, you will have to pay the claim in the manner dictated by your plan. The more money owing on secured claims dealt with in your plan, the higher your plan payment. For example, many people try to catch up the amount they are behind or in arrears on their mortgage. If you are $5,000.00 behind on your mortgage, that amount of money will be put in your plan and paid in full while you continue to make your house payment outside the plan (depending on your district). If more or less in mortgage arrears is put inside your plan, your minimum plan payment will fluctuate accordingly, that is, the more money owing that is put inside your plan, the higher your required plan payment.
Feasibility test: While this was more of a “test” under prior bankruptcy law, there is a practical aspect to this test. Essentially, do you have sufficient income to continue to pay your day to day living expenses and maintain your chapter 13 plan payment? If you don’t have sufficient income, your plan is going to fail. While I have not heard of any “feasibility” challenges to chapter 13 plans in my district, the simple fact is that if you still run out of money before the end of the month, your chapter 13 case will not last long.
As you can see, there is a lot that goes into determining how much you pay to your chapter 13 trustee. Your plan payment requires more analysis than determining how much you can afford to pay.