How is My Chapter 13 Plan Payment Determined?

How much is my plan payment going to be? This is by far the most common question I get from individuals contemplating a Chapter 13 Bankruptcy. As always, the answer depends on several factors. I will give a brief overview of some of the most common factors affecting the amount of the monthly plan payment.

The analysis begins with gross monthly income. Typically, we start with a 6-month average to even out the peaks and valleys. In certain situations, a 12-month average is more appropriate, especially when bonus or other income is expected. Depending on the case, bonus income may be turned over to the Chapter 13 Trustee or it might be averaged into the monthly income. After the gross income is determined, the average of all payroll deductions is subtracted out. Things like taxes, health insurance, life insurance, 401k or other retirement contributions and repayment of retirement loans, child support and spousal maintenance payments, etc. are deducted from the gross income. That gives us the average monthly net income: your take home pay.

Next, we subtract living expenses. Some expenses are actual, and some expenses are guideline. What is the difference? Rent or mortgage payment are an actual expense. An example of a guideline expense is the vehicle operating expense. This expense is to account for the average monthly cost of operating a motor vehicle. It accounts for things like gas, license tags, repairs, and maintenance. Notice it does not include the regular monthly vehicle payment, as that is a debt paid through the Chapter 13 Plan. In this district, the typical guideline expense for a motor vehicle is $340 per month. For some individuals, the guideline expense does not accurately reflect their actual expense. For example, someone with a long commute and high mileage vehicle may have vehicle operating expenses in excess of the guideline expense. In those situations, we can claim the actual higher amount, but we will need to document the expense and provide justification for the higher amount. Other guideline expenses are things such as food and clothing. After we subtract out the allowable expenses we arrive at the monthly disposable income. This is what is left over and what will be paid to the Trustee each month. However, it is not always that simple.

After we determine the monthly disposable income, we must look at what debts will be repaid through the Chapter 13 Plan to determine the estimated minimum that must be paid to the Chapter 13 Trustee. Is a secured vehicle loan being paid thorough the Plan? Are there priority tax debts being repaid? What about mortgage arrearages? Are there any non-exempt assets that must be accounted for? All of these things are a factor in the amount of the monthly plan payment.

Let’s look at the following example. Bill has fallen behind on his mortgage and vehicle payments. Additionally, he owes some back taxes. Let’s say Bill owes $20,000 on his vehicle, is behind $10,000 on his mortgage, and owes about $5,000 in back taxes. The total is $35,000. Additionally, Bill will have about $3,500 in attorney’s fees paid through his plan increasing the amount to $38,500. Assuming Bill is in a 60-month Chapter 13 Plan, Bill would have to pay a minimum of about $642 per month to pay off the vehicle, bring the past-due mortgage payments current, pay the back taxes and attorney’s fees. However, there is still more to consider. Since Bill is behind on his mortgage payments, he must make his regular monthly mortgage payment to the Chapter 13 Trustee as part of the Plan payment: this is what is known as a conduit plan. If Bill’s regular monthly mortgage payment is $1,500, he must add that to the monthly payment to the Chapter 13 Trustee. This will increase Bill’s plan payment to $2,142 per month: But wait, there is more. We must also factor in a statutory fee of 10% to the Chapter 13 Trustee which will increase Bill’s monthly plan payment to about $2,356. Keep in mind, in this example, Bill will not make a mortgage payment or car payment each month: those are included as part of his monthly payment to the Chapter 13 Trustee.

Back to our income and expense calculation. What if, after taking all of Bill’s income and expenses into account, his disposable income is only $2,000 per month? What if it is $3,500 per month? If Bill’s monthly disposable income is only $2,000 per month, we will have to reduce Bill’s expenses to show he has the ability to make the required plan payment. If Bill’s monthly disposable income is $3,500 per month, then he will make a monthly payment of $3,500 to the Chapter 13 Trustee. The excess funds will go to Bill’s unsecured creditors.

This is a gross simplification of how a Chapter 13 plan payment is calculated. Every case is different. Some Chapter 13 cases will pay very little to unsecured creditors while others will pay them substantial dividend. It all depends on income, expenses, the amount and types of debt being addressed and if there is any non-exempt property that must be accounted for.

If you are in the Buckeye, Goodyear, Wickenburg, Avondale, Glendale, Surprise, Peoria, or Phoenix areas and have questions about filing a Chapter 13 Bankruptcy and how it might benefit you, give Treguboff Law, PLC a call for a free consultation.