Clients always ask how much their Chapter 13 Plan payment will be, and how much they will have to pay the Chapter 13 Trustee each month.
This isn’t an easy question to answer, since there are four different tests used to determine the number: the Means Test, the Chapter 7 Liquidation Test, the Disposable Income Test, and the Required Payment Test.
The Means Test is a formula imposed by Congress in the 2005 BAPCPA amendments, and the numbers used don’t necessarily have anything to do with reality. Basically, you average your household income for the past six months, multiply by 12, and compare that number with the median family income for a household of your size. If you’re under, the Means Test requires a $0 payment. If you’re over, you’re allowed certain deductions, which determine your payment.
The Chapter 7 Liquidation Test doesn’t mean that your assets will be liquidated, or sold. It simply means that you look at what a Chapter 7 Trustee could get if he/she were to sell all your non-exempt assets. For example, if you would have $60,000 in non-exempt equity after your house were sold (an increasingly rare event in this economy), you would have to pay your creditors at least $60,000 over the term of your Chapter 13 Plan. If, as is often the case, there are no non-exempt assets with equity, the Chapter 7 Liquidation Test requires a $0 payment.
The Disposable Income Test looks at your actual income and your actual and projected expenses. You take your net income (listed on Schedule I) and subtract your actual and projected expenses (listed on Schedule J). Since you are required to pay all of your disposable income into the Chapter 13 Plan, the number that results is the minimum Chapter 13 Plan payment (although some Chapter 13 Trustees will allow you to pay a bit less to provide for contingencies and emergencies).
The final test is the Required Payment Test. This test looks at the claims that must be paid in full through the Chapter 13 Plan (attorney’s fees, priority taxes and domestic support obligations), the amount of secured debt (typically mortgage and car) arrearages, the percentage payment to the general unsecured creditors, and the Chapter 13 Trustee’s commission, and adds these numbers up. The result is called the Plan Base: it is the number that must be paid through the Plan. Assuming that none of the other three tests require a different result, dividing this number by the number of months in the Plan gives you the monthly payment.
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Last modified: December 28, 2011