Chapter 13 Bankruptcy: How is my Repayment Plan Calculated?
February 20, 2010
Overview
Chapter 13 bankruptcy generally lets you keep most or all of your assets and requires you to repay some of your debts over a 3-5 year period. But, how do you determine how much you have to pay and for how long?
Your repayment plan: what is it?
Your repayment plan is a document that describes in detail (1) how you plan to repay your debts and (2) how much you propose to pay.
You submit your plan to the bankruptcy court for approval. The plan must be “confirmed” by a bankruptcy judge. He or she will will review your plan to be sure it complies with Chapter 13 requirements and is feasible considering your economic situation.
Your repayment plan: what debts are included?
Your plan must explain how you propose to satisfy the following requirements.
Priority debts. Your Chapter 13 plan must pay certain debts in full. These debts are called “priority debts” and include back wages you owe to employees, child support and alimony, and some tax debts.
Secured debts. In addition to paying priority debts, your plan amount must also cover your regular payments on secured debts, such as a car loan or mortgage. The plan must also allow you to pay any past due amounts on your secured debts.
Unsecured debts. The plan must show that any “disposable income” you have after paying priority and secured debts (described above) will go towards paying some of your unsecured debts. Your disposable income is calculated using a formula set by the bankruptcy court.
You usually don’t have to repay unsecured debts in full. But your plan must show that you are putting any remaining disposable income towards their repayment.
And, if you have a lot of assets that would be subject to seizure by the trustee if you had (hypothetically) filed Chapter 7 bankruptcy, then the amount you must pay towards your unsecured debt might be higher.
Your repayment plan:Â how long does it last?
The length of your repayment plan depends on a number of factors, including how much you earn and the amount of your debts.
If your average monthly income over the six months prior to your bankruptcy filing date is more than the median income for your state, you will need to propose a five-year plan.
If your income is lower than the median, you may propose a three-year plan.
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