If you file a Chapter 13 bankruptcy case, your attorney will draft a repayment plan that will be in effect for up to five years.
If you file a Chapter 13 bankruptcy case, your attorney will draft a repayment plan that will be in effect for up to five years. Five years is a long time, and your financial situation is liable to change during that time. So your plan payment may change based on changes in your situation. However, you're probably wondering what your payment will be starting today, if you file now.
In Chapter 13, you propose a plan payment to the court, rather than let the court tell you what the payment will be. Your creditors or the bankruptcy Trustee can object to your proposed plan for a variety of reasons, and a common objection is that the proposed payment isn't high enough. If they object, you will need to increase your payment. If you can't afford the higher payment, the plan may not be feasible and the case may be dismissed.
To determine the payment plan, you will first have to consider the amount of debt you must repay as well as the assets you want to keep.
For example, say you have a car loan and you're behind a few months on your mortgage. You want to keep both your home and your car. Your payment will need to cover your normal mortgage payment, plus some extra to make up the missed payments. It will also need to cover the balance on the car loan. If you decided to give up your home or the car, your payment wouldn't have to include those amounts.
Other debts also must be repaid in a Chapter 13 bankruptcy. Common examples are your bankruptcy attorney's fee (if you don't pay the full amount up front), child support and some taxes. Whatever the total number is, you will have to include repaying that amount in the bankruptcy case. These debts are considered "priority" debts, and there are others as well, but these are the most common.
Once you know which debts you must repay in your bankruptcy case, you can get a general idea of what your payment would be. To do so, add up the total amount owed on your car, the arrears owed on your mortgage, and your total priority debts. A general rule of thumb is that for every $10,000 owed on these debts, it will cost about $200 per month for the five year plan. So if your total is $60,000, it will be about $1,200 a month to pay those debts.
If you are current on your mortgage, you may be able to pay the mortgage outside of the bankruptcy plan, but otherwise it will be included in the repayment plan. If your mortgage will be paid through the plan, you will add your mortgage payment to the amount you're required to pay on your other debts, and this will give you an estimated payment plan amount. Individual plan payments will vary somewhat, but this number gives you a good idea of what the minimum repayment plan payment would be.
A second consideration that determines your payment plan is your monthly budget.
You've already calculated the minimum payment that the plan can be, but the court will also look at your income and expenses. When you do the calculation above, you may get a $2,500 payment. But if you have enough income so that, after taking out living expenses, you still have $5,000, the court will want those funds to go to your creditors. The payment will need to be increased to use all your disposable income, or to fully repay all your creditors. It is important to fully discuss all your income and expenses with your attorney so a complete picture of your finances is presented to the court.
Your exact plan payment will be determined with your attorney after reviewing of all your financial information. The information we've provided here should give you a general idea of what to expect, and why. We would be happy to discuss your situation with you in more depth.