Calculating a Chapter 13 plan isn't easy, but it's essential to the Chapter 13 bankruptcy qualification process. The first step? Determining whether you'll pay into a three- or five-year plan.
If you're like most, you'll pay for five years, and you'll need the following information to determine your monthly payment:
The step-by-step instructions below will get you on the right track. If you get lost, skip to "Chapter 13 Calculation Shortcut" at the end of the article, and use this Chapter 13 calculator to check your figures. It will help.
Chapter 13 is costly. Unless your income is low enough to qualify for Chapter 7, you'll have to pay all your monthly income into a five-year plan. And even then, you might still be unable to afford the required Chapter 13 payment. It will depend on your debt type.
To figure out your monthly payment amount, you'll start by calculating the bills you must pay in full—your secured and priority debts. Your unsecured creditors will share any remaining income, so you'll address unsecured obligations last.
These are the "important" obligations your plan must pay in full. Add up the entire amount owed for these common priority debts:
You'll divide the total amount by sixty. That's the monthly amount you'll pay. Here's where you can find more priority debt categories (they're the same in Chapters 7 and 13).
If you want to keep your home, car, or other property securing debt, in most instances, you'll pay your usual monthly payment amounts. A "secured" debt is an obligation guaranteed by collateral—usually, the property you purchased—and if you don't pay, the lender can use lien rights to take the property back, even in bankruptcy. (But the lender will need to ask the court to lift the automatic stay first.)
If your income doesn't cover priority and secured payments, you won't qualify. If you have money left over, move on to the next step.
Anything that doesn't fall into the priority or secured debt category will be a nonpriority unsecured debt. These obligations share your monthly disposable income, which is the amount remaining after paying priority and secured obligations and allowed monthly expenses (up to the total amount owed to your unsecured creditors—you don't have to pay more if you have a lot of disposable income).
But the calculation isn't complete. The last step will determine whether you have to pay more than your disposable income. If you do, you won't qualify.
Here's where the calculations can get confusing. You're going to compare these two things:
If the amount your plan pays your unsecured creditors (the second figure) is the same or more than what your unsecured creditors would have received in Chapter 7 (the first figure), you'll qualify. Otherwise, you won't be able to propose a confirmable plan that the bankruptcy court will approve.
Now you should have an idea about what you need to pay. But it's not easy to grasp the first time through. Try using the "Chapter 13 Payment Calculation Shortcut" below. It addresses each step in a streamlined manner (but pay close attention to number 5).
This simplified calculation will give you a general idea about whether you can afford a five-year Chapter 13 plan, the most common plan length. Here's what you'll do:
This figure approximates the minimum amount you'd need to pay in a confirmable plan. Keep in mind that you'll also add in other priority debts like claims for death or personal injury due to driving under the influence and other secured lien amounts, but these are relatively rare.
Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.
Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.