Your Chapter 13 plan must calculate Chapter 13 plan payments that pay the secured and priority debts in full. The unsecured debts may be paid as low as 0%. If you properly include all your reasonable and necessary expenses this percentage is often well below 50%. We include items like 401k retirement expenses if you regularly contribute. If there are going to be few or small unsecured claims you may wish to calculate chapter 13 plan payments to be higher.
How to Calculate Chapter 13 Plan Payments
There are advantages to the plan payment being low. Of course, it is affordable. But there are also times when the unsecured claims are small when it is to your advantage to pay back unsecured debt at 70% or even 100%.
⎆ You must pay the following back in full in Chapter 13.
- Your mortgage arrearages.
- Any income taxes which are priority debt must be repaid in full. Income tax returns filed less than two years ago and tax years less than three years old are priority debts. If you did an offer in compromise or filed bankruptcy within these periods you may have to increase this waiting period.
- The balances of your car loans may need to be repaid in full. You may also be able to pay your auto loans directly. But, paying them in the plan might lower your interest rate to prime plus 1%. If the loan is over 910 days old or you didn’t purchase the auto with the money from the loan, you might be able to lower the principal amount that you owe. Also, if the auto loan is for a work vehicle, you can cram down the value you have to repay as a secured claim.
- Any other priority debts that file a claim such as child support must be repaid in full.
- Administrative expenses. (Attorney and Trustee fees). A normal attorney fee for a Chapter 13 is $4,000 dollars. Trustee charges are about 4% of what you pay through him. Chapter 13 is more expensive than Chapter 7 but there are extra tools for you in Chapter 13. Plus, these fees are taken from the amount you would have paid to unsecured creditors.
⎆ How long does the Chapter 13 plan last?
If you make less than the average income you may only have to be in Chapter 13 for 36 months. If you make more than the average your plan must be for 60 months. Simply divide the total amount that must be paid back by 36 or 60 to get your minimum plan payment amount. This amount includes the attorney and trustee fees. The attorney fee in Chapter 13 in Louisville is always $3,750. The Trustee charges about 5% of what is paid through his office.
⎆ Saving money on Chapter 13 legal fees.
Whether you use the worst or best attorney in town the price is the same. The court has a flat fee of $3,750 which is the same for every attorney. But, there is a lot of work to a Chapter 13 petition. The only statistics I have on the success ratios come from California.
The average person who attempts to file his own Chapter 13 has the case dismissed well over 90% of the time. The average person saves far more than the attorney fee by hiring a lawyer with the right experience.
Think of it this way. If you do your own dental work, it looks and feels like you did your own dental work. After all, you hire an attorney with experience at the same rate as the lowest cost attorney. So, in Chapter 13, hire the best attorney you can get!
⎆ The minimum you must repay to the unsecured creditors.
Your Chapter 13 must pay back an amount equal to what Chapter 7 would have paid if the property would have been sold in a Chapter 7 bankruptcy. This is called the liquidation test.
You are also required to make your best efforts to repay your debts. If your income goes up and your expenses remain the same you may have a higher payment.
Additionally, every year you do an annual budget which is normally very similar to your petition budget in schedule I and J. Plan payments to the unsecured creditors may be zero but that has to still be your best efforts and equal to or more than what a Chapter 13 would repay.
⎆ The advantages of a higher percentage when calculating Chapter 13 plan payments.
Plans which pay back over 70% to the unsecured claims are deemed to be filed in good faith. Plans which pay back 100% do not require filing an annual budget or surrendering annual tax refunds.
As the plan percentage increases, you gain the approval of the court. They look over the petition far less on a 100% plan than a 10% plan. If you have a 0% plan the judge and trustee will make sure that you are repaying all you can.
If you receive an inheritance or other windfall during the plan you will be required to turn it over to the court. Tax refunds are lost annually if you have a plan which repays less than 100%.
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.