How is my monthly Chapter 13 Plan Payment?
Your monthly plan payment is will be calculated by determining what your creditors would receive if you use your “best efforts” to paying them back. This means that the court will look at the amount of assets or equity you have, your actual budget and/or your income as compared to your State’s median income for a household of the same size.
Factor 1: Assets and Equity
One factor in determining the plan payment in a Chapter 13 Bankruptcy is by using equity and assets. First, we calculate the fair market value of your assets. From there, we subtract the amount of exemptions that can be used to protect your property if you were to file a Chapter 7. The resulting number is the amount that would be paid to your creditors if you liquidated your assets in a Chapter 7.
In a Chapter 13, the amount liquidated is used to calculate your payment plan. In short, your creditors must get paid at least the same amount they would have received in a Chapter 7. For example, lets say you own a home with $60k in equity after taking exemptions. You want to file bankruptcy because you owe $150k to your creditors. If you were to file a Chapter 7, the bankruptcy trustee would sell your home and pay the creditors $60k from the non-exempt equity.
Therefore, if you file Chapter 13 Bankruptcy, you must be pay your creditors at least $60k over the course of your plan. If the plan is for 5 years, than the plan payment must be at least $1000.00 per month for 60 months. Please note that the plan payment will be a little higher due to the court’s, trustee’s and attorney’s fees.
Factor 2: Income
The second factor used to determine your “best efforts” is your income. The first part of the income analysis is to determine whether your income is above or below your State’s median income. A chart can be found on the Department of Justice Website here.
Using your Budget
If your income is below your State’s median income, then your actual budget is used to determine your plan payment. Your budget is calculated by taking your gross household income and subtracting your necessary expenses. The amount left over would be your plan payment if is less than the amount calculated in Factor 1.
If your income is above your State’s median income.
If your income is above your State’s median income, then you will have to do the long form “Means Test” calculation. The “Means Test” is a calculation to determine your “current monthly income” and your “disposable monthly income.” This is similar to the budget test explained above, except that the amounts used for many necessary expenses are predetermined using the IRS standard allowances. Standard allowances can be found at the following links:
- IRS National Standards
- Food Clothing and Shelter
- Housing and Utilities
- Out of Pocket Health Expenses
Best Efforts Plan Payment
After calculating Factor 1 and Factor 2, your “best efforts” is determined by the highest amount. If the income left over after calculating your actual budget is higher than your equity, than that will be your payment plan. If your “disposable monthly income” is more than your equity, than this is your “best efforts,” and your required plan payment. Anyone interested in filing a Chapter 13 Bankruptcy should consult with an bankruptcy attorney. Confirmation rates for pro se Debtors are extremely low. For more information on the Chapter 13 plan click here.