Many factors are taken into consideration when determining how much an individual will pay under a Chapter 13 plan. Chapter 13 plans are typically range from three to five years, depending on an individual’s income. If an individual’s income is below the median income for a similar household within the state, then the plan can range between three to five years. However, if an individual’s income is above the median, then the plan will typically be five years. This will be determined based on the Means Test, taking a look at all of an individual’s disposable income.
Once it’s determined how long an individual’s plan will be, the next step is to figure out which debts will be paid through the plan. All priority debts will be paid through the plan because these debts cannot be discharged in bankruptcy. The most common Priority Debt is back taxes. If an individual is behind on mortgage payments and want to keep their house, all mortgage arrears will be paid through the home. The regular mortgage payment will also need to be made through the plan. However, if an individual was planning on surrendering their home, the mortgage arrears and mortgage payments would not be included in the plan. If there is a second mortgage on the home, the second mortgage could be eliminated through lien stripping, and won’t need to be included in the mortgage payment.
If an individual has a car loan and intends on keeping the car through the bankruptcy, then the car payment would need to be included. If the individual was behind on car payments, then the car would need to be included and paid through the bankruptcy. If the car loan is up to date in payments, an individual has to option to keep their car payments outside of the bankruptcy. However, if an individual decides to pay their car loan through the bankruptcy, the individual could have the option of cramming down their loan so that they will only need to pay the fair value of the vehicle instead of the full loan amount. If an individual has any other secured debt, they will also need to be included.
The last part in determining the Chapter 13 payment is to include administrative fees and interest charges. Chapter 13 trustees get paid by taking a percentage of all amounts they distribute, which could be up to 10%. Any interest rates on secured claims would also be included in the payment amount as well.
Keep in mind, if an individual has a lot of disposable income or nonexempt assets, the plan payment may be higher. If the trustee can see an individual who has a lot of disposable income, the payment will be higher so that the secured debts will be paid but also more will be paid to the unsecured debts as well.
If you are struggling financially and considering bankruptcy, I invite you to call my office at (616) 920-0555 to schedule a free consultation to see if bankruptcy is right for you.