Intrigued by Chapter 13, but worried about how much your Chapter 13 payment might be?
OK, let’s walk through what your payment must be by law and what you want that payment to cover to get a fresh start.
Part of the power of Chapter 13 is that you write the plan, with the help of your bankruptcy lawyer. Forget all the internet trash that says the court decides how much you can pay. The real role of the court is to decide if the plan you propose meets the legal minimums.
Three measures of Chapter 13 payment
Your proposed Chapter 13 plan is subject to three tests found in the law. Does it
- pay in all of your means test disposable income
- give unsecured creditors at least what they would have gotten in a Chapter 7
- satisfy in full priority claims for taxes and family support
That’s what the plan must do.
For number 1, the “best efforts test”, you total up what your monthly disposable income is (according to the means test) and multiply by the number of months required for the plan.
For number 2, the “best interests of creditors” test, you calculate what a trustee would have to distribute to unsecured creditors in a hypothetical Chapter 7.
For number 3, the statutory test, you calculate the total of claims with a statutory priority.
Your plan must provide creditors with the largest of those three numbers.
Additional debts you want to pay
But you may want to pay other debts through the plan, as well. Your car, for example. Or mortgage arrears? Or a cosigned debt.
So you add the total needed to pay those debts to the number that you got from the calculations we just did.
Add the administrative expenses
The plan “pot” swells a little more before you have the final plan payment number. The Chapter 13 trustee gets paid for the work the trustee does from a commission calculated as a percentage of money flowing through the plan. The percentage changes periodically, but is capped by law at 10%.
Finally, if you didn’t pay your lawyer in full before you filed, your attorney’s fees can be paid through the plan as well.
Chapter 13 plan payments in the real world
In practice, it’s often hard to lock the plan payment down at the beginning of the case. Priority claims may come in at a number different than the one you used. The trustee’s commission may change. And if the highest number of three confirmation tests is your disposable income, that might change over the course of the case.
But the important thing is that you are not exposing yourself to the decision of a judge or trustee about what you must pay. There’s a formula; you can estimate what you’ll pay.
And you’ll often be surprised to find that what you need to pay is markedly lower than what you’re paying now.