How to Understand the Chapter 13 Plan Payment

A chapter 13 bankruptcy is a plan to re-organize a debtor’s liabilities and get a fresh start unburdened by mounting unsecured debt (credit cards, medical bills, etc.). Such a plan requires payments to a bankruptcy trustee. But how much are those payments?

To a large degree the amount paid into the plan varies and depends on what is to be accomplished by the plan. Payments can include the mortgage on your house or a car payment. But, the most troublesome part of the calculation is determining what, if anything needs to be paid to unsecured creditors.

The mathematics of this calculation can be complicated. The amount to be paid is the lesser of the amount that the creditors would have received in a Chapter 7 liquidation bankruptcy or the greater of the amount identified in the means test as “projected disposable income” or what it would take to pay off the unsecured creditors in full. Got it?

The first step is to determine what the unsecured creditors would have received in a chapter 7 bankruptcy. That amount is, roughly, equal to the non-exempt value of the debtor’s assets less costs of administering that property. In many cases this will be nothing or close to it.

Then take a look at whether or not there is any projected disposable income after doing the Means Test. This is the amount on the last line of the form, and is, theoretically, what is left at the end of each month after paying the mortgage, food, the car payment, and the rest of the living expenses. The debtor is expected to pay that each month to unsecured creditors. If that amount is not zero; multiply by 60 and compare it to the total amount of the unsecured debts. Pay the smaller of the two divided by 60 each month.

But the actual amount to be paid each month into the Chapter 13 bankruptcy plan is the amount just calculated plus administrative costs and any other amounts to secured or priority creditors that are necessary to make the plan work (such as arrears on a mortgage, tax obligations or child support).