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How are my monthly payments calculated in a Chapter 13 plan?

Chapter 13 bankruptcy is also known as a wage earner's plan, or debtor's court. This is because its purpose is to allow debtors to consolidate creditor payments over a three to five-year period. Those payments can include amounts on which a debtor has fallen behind, such as a home mortgage or car note, while allowing them to retain the collateral and catch up. Payment amounts are based on the debtor's current income.

There are three types of creditor claims which are calculated into a Chapter 13 bankruptcy plan payment. They are priority, secured, and unsecured. Priority claims include any debt that is generally non-dischargeable in a bankruptcy filing. They may include taxes, bankruptcy proceeding costs, attorney fees, domestic support obligations, or student loans. Unless a priority creditor agrees otherwise, these claims will be paid in full over the course of the Chapter 13 plan.

Secured debts are those which contain collateral that a creditor could repossess or foreclose on. Examples include houses, vehicles, boats, motorcycles, or business equipment, just to name a few. These debts are next in line for payment after priority claims. If a debtor wishes to retain the collateral for a debt, it too must be paid in full over the course of the plan, unless a creditor agrees otherwise. One exception would be mortgage payments. While they will be brought current by the Chapter 13 plan, those payments may continue for years after a Chapter 13 discharge. It is very unlikely that any bankruptcy debtor would have the income to pay off a 30-year mortgage over the course of a three to five-year plan.

Third, and finally, are unsecured debts. These include credit cards, loans, and medical expenses among many others. They are debts for which there is no collateral which could be taken back by a creditor. These creditors are paid a percentage of their debt based on how much monthly income is left after payments are made to priority and secured creditors. Therefore, if a debtor does not produce a significant monthly income amount, unsecured creditors quite often are scheduled at zero percent, which means they do not receive any payments. If a debtor completes his or her Chapter 13 plan and receives a discharge, he or she are no longer liable for these debts even though nothing was paid.

A bankruptcy attorney can review your income, assets, and debts to offer a general idea of what monthly Chapter 13 plan payments would look like in your unique circumstance.

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