Chapter 13 Bankruptcy Payments – How To Calculate Yours
In A Nutshell
The Following Factors Must Be Considered When Calculating A Chapter 13 Monthly Payment:
1) Type Of Debt (Secured, Unsecured, Priority, Non-Priority)
2) Monthly Payment Toward The “Must Pay” Debts
3) Monthly Payment Toward the “Might Pay” Debts
Chapter 13 Payment In More Detail
Every potential client I meet with regarding a Chapter 13 bankruptcy wants to know what their monthly Chapter 13 payment will be… obviously. At times I can calculate this amount while the person is in my office. Other times, because of the complexity of the situation, I need time to analyze the entirety of the individual’s situation to formulate an accurate payment amount. There are several factors that go into the calculation of the monthly payment. The steps below will walk you through this formula.
1) Type Of Debt (Secured, Unsecured, Priority, Non-Priority)
First, we have to determine what does and does not have to be paid through your monthly payment. In most Chapter 13s, you will not pay all of your debt back during the 5 year period. Rather, certain debts MUST be paid while other debts MIGHT be paid based upon various factors.
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Things That MIGHT Be Paid Through Your Chapter 13 Payment:
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2) Monthly Payment Toward The “Must Pay” Debts
Second, we calculate the monthly amount that will be paid toward the debts that MUST be paid through your Chapter 13 payment.
(A) Secured debts are paid through your payment. Your car loan will (in most cases) be paid off through your monthly bankruptcy payments. Depending on when the loan against the vehicle was incurred, you will either payback the full balance owed or the value of the vehicle. You will pay this amount back at the Till interest rate, which will typically be lower than the current rate on your vehicle’s loan. See my previous blog post regarding how your car is treated in Chapter 13.
(B) Priority taxes are paid through your payment. There are different types of taxes (including income taxes, property taxes, payroll taxes, and more) that are often dealt with in bankruptcy. Income taxes are certainly the most prevalent. If the Law considers the tax to be “priority”, then it must be paid in full through your Chapter 13 payment. I have discussed more regarding taxes in my previous post.
(C) Attorney fee is typically paid for through your Chapter 13 payment. Because Chapter 13 lasts for 3 to 5 years, the attorney fee is typically more than the attorney fee in a Chapter 7. Because of this, the Law allows the attorney fee to be paid for through your Chapter 13 payment. Some attorneys require a portion of the attorney fee to be paid “upfront” (before your case is filed), but I rarely ask for this. The exact amount of attorney fee you pay will depend on your situation. The Bankruptcy Court has established a “Standing Order” which sets “presumptive base” attorney fees for Chapter 13 cases. Click here to see the Standing Order for the Middle District of North Carolina.
(D) Trustee administration fees are paid through your payment. The Trustee is the person that takes your money and disburses to your creditors. She gets a percentage of your monthly payment… typically 8%.
3) Monthly Payment Toward the “Might Pay” Debts
Third, we calculate the monthly amount that will be paid toward the debts that MIGHT be paid through your Chapter 13 payment.
In a Chapter 13 bankruptcy you will pay a percentage of your unsecured debts ranging from 0% to 100%. The percentage you will pay depends on a few factors.
Factor 1: Do you have the ability to pay something to your unsecured creditors after the “must pay” debts are paid? The Law considers your (1) household income (basically the income of you and your spouse or anyone else with whom you live with and share expenses) and (2) household expenses to see if your budget creates any excess income. If your household budget produces any surplus income following payment of the “must pay” debts, then this extra money will be paid into your Chapter 13 plan. The surplus money will go to pay a percentage of your unsecured debts (see more regarding alimony and child support below). Keep in mind that if your expenses vastly exceed the national standard expenses for a household the size equivalent to yours, then your budget will be heavily scrutinized.
Factor 2: Do you own property that falls above the exemption limits? If the property you own falls above the exemption limits, then you will have to pay an amount equal to the unexempt value through your Chapter 13 payment. Again, this extra money will go towards a percentage of your unsecured debts. The best way to explain this is using an example:
An individual in a Chapter 13 has a vehicle worth $10,000.00 that has no debt on it. The individual has no other property to their name. The individual can use his vehicle exemption to exempt $3,500.00 of the vehicle and his wildcard to exempt $5,000.00 of the vehicle for a total exemption of $8,500.00. This leaves $1,500.00 of the vehicle unexempt. The individual will pay an extra $1,500.00 through his bankruptcy payment over the life of the bankruptcy. If his bankruptcy lasts 60 months, then he will pay $25.00 a month ($1,500 / 60 = $25) toward his unsecured creditors.
Factor 3: Are you current on your child support and alimony payments? If you are current and remain current during your bankruptcy, then these payments can continue to be made directly to the recipient and NOT through your Chapter 13 payment. If you are delinquent, then the arrearage owed and the ongoing monthly payment will likely have to be paid through your Chapter 13 payment. Keep in mind: if you become delinquent on these during your bankruptcy, then the Court can dismiss your case.
If you desire to have me calculate your Chapter 13 monthly payment, then start that process by filling out our online intake form. Completing the intake form does not obligate you to anything. Rather, I will respond quickly with my analysis and an estimated Chapter 13 monthly payment. I will also help you determine whether or not bankruptcy is an option for you to consider.