Chapter 13 is a type of bankruptcy that allows an individual debtor to make monthly or biweekly payments to the bankruptcy trustee to repay some of their creditors. Generally speaking, you don’t have to repay all the debts you owe. To file under Chapter 13, you need to present a repayment plan to the court. That begs the question, how is this repayment plan calculated, and how much of your income do you have to commit to it? Danville bankruptcy attorney Chris Arrington will answer that very question.
The Chapter 13 bankruptcy plan
When you file your Chapter 13 bankruptcy petition, you will also have to file a Chapter 13 bankruptcy plan with the bankruptcy court. The Chapter 13 plan details how you intend to repay your creditors and how much they will be paid.
This plan requires that you make monthly or biweekly payments to a bankruptcy trustee over the period of 3 or 5 years. Unsecured creditors (such as credit card companies and medical debt holders) will only get paid a small percentage of what they are owed if they get anything at all.
Factors that influence your Chapter 13 repayment plan
What factors influence your Chapter 13 repayment plan?
- Your disposable income – Your disposable income is the amount left over after deducting your reasonable living expenses and necessary payments such as rent, food, utilities, and transportation costs from your total monthly income. This is the amount that you can afford to pay toward your debts.
- Priority debts – Tax debts, child support obligations, and alimony are all considered to be priority debts. These must be paid in full.
- Secured debts – Debts backed by collateral, such as mortgages or car loans, are considered secured debts. You must continue making regular monthly payments to keep the collateral. Arrearages can be included in your repayment plan.
- Non-exempt property – The value of non-exempt property in a Chapter 7 bankruptcy can be used as a threshold to impact the amount you might need to repay unsecured creditors. The larger the value of your non-exempt property, the larger your repayment plan will be.
- The length of your plan – Those who choose a three-year plan will have higher monthly payments than those who select the five-year plan.
How is your Chapter 13 repayment plan calculated?
Considering the above factors, your Chapter 13 repayment plan is calculated using the following formula:
- Total value of priority debts + Arrearages on Secured Debts + Disposable Income + Non-exempt property = Your Total Plan Payment.
This amount is then divided by the length of your plan. In the case of 3 years, it would be divided by 36 months. In the case of 5 years, it would be divided by 60 months. This number will make up your monthly payment to the bankruptcy trustee.
Talk to a Danville, IN, Chapter 13 Bankruptcy Attorney Today
Chris Arrington represents the interests of Indiana residents looking to file for bankruptcy. Call our office today to schedule an appointment, and we can begin going over your options right away.