Your Chapter 13 repayment plan determines how much you'll pay each month for the next three to five years. Understanding how these payments are calculated helps you evaluate whether Chapter 13 is feasible for your situation and what your budget will look like throughout the repayment period.
Factors Determining Your Payment
Chapter 13 payments depend on several factors working together. Your income determines how much you can pay. Your expenses, particularly those the court deems reasonable and necessary, determine what you need to keep. Your debts, especially secured and priority debts requiring full payment, establish minimum amounts the plan must provide. The interplay of these factors produces your monthly payment amount.
Disposable income represents the key calculation. Take your total income, subtract allowed expenses, and the remainder is disposable income that must go to creditors. The means test form used in Chapter 7 determines allowed expenses, using IRS standards for some categories and actual expenses for others.
The Applicable Commitment Period
Your plan length depends on your income relative to your state's median. If your income falls below the median, your plan can be as short as three years. If your income exceeds the median, you must commit to a five-year plan. This longer commitment for higher earners ensures they repay more to creditors before receiving a discharge.
Even below-median debtors may need five-year plans if three years isn't enough to pay required amounts to secured and priority creditors. The plan length is a minimum of what's required to meet legal standards, not simply a choice between three and five years.
What Must Be Paid
Certain debts require full payment through Chapter 13 plans. Priority debts including most taxes, domestic support obligations, and administrative fees must be paid completely. Secured debts like mortgages and car loans typically must be kept current, and any arrears must be cured through the plan to retain the collateral.
Unsecured creditors must receive at least what they would have received in a Chapter 7 liquidation. This best interests test ensures unsecured creditors don't fare worse than if you had filed Chapter 7. If you have significant non-exempt assets, this requirement may increase what you must pay unsecured creditors.
Calculating Your Actual Payment
Working through the Chapter 13 calculation begins with completing the means test forms to determine your disposable income. This amount, multiplied by your applicable commitment period, establishes your minimum payment to unsecured creditors. Add required payments to priority and secured creditors, trustee fees, and attorney fees typically paid through the plan.
Sample calculations help illustrate the process. If your monthly disposable income is $500 and you're in a five-year plan, you'll pay at least $30,000 to unsecured creditors. If mortgage arrears of $12,000 must be cured and priority tax debt of $8,000 paid, those amounts add to the plan. Trustee fees and attorney fees add more, producing a total plan amount divided into monthly payments.
What If Payments Are Unaffordable
If calculated payments exceed what you can actually afford, Chapter 13 may not be viable without adjustments. Reducing expenses where possible increases disposable income but also increases required payments. Timing filing to capture lower income months in the lookback period may help. Sometimes selling assets to pay secured debts reduces what the plan must cover.
Consulting a bankruptcy attorney helps identify strategies for making Chapter 13 work or determining that Chapter 7 is more appropriate. The calculations are complex, and professional guidance ensures you understand your options accurately.