Chapter 13 Repayment Plan: How is it Calculated?
by
Alison C. Briggs on Jun. 04, 2012
Bankruptcy & Debt Bankruptcy & Debt Bankruptcy Bankruptcy & Debt Credit & Debt
Summary: An article briefly explaining the methods that the court uses to determine the monthly repayment plan in a Chapter 13 bankruptcy.
Repayment Plan Calculation Methods
Chapter 7 bankruptcy is often the ideal Chapter for most people who want to file for bankruptcy. Chapter 7 allows a debtor to file for bankruptcy and discharge general unsecured debt (e.g. credit card debt, debt from civil judgments, deficiencies from repossessions, medical bills) without having to pay any of the debt back. However, a number of circumstances can arise that can prevent a debtor from being allowed to file a Chapter 7 bankruptcy. If the debtor makes above the median income for the state in which they file and the debtors income compared to their monthly expenses are too high, they may not be able to file a Chapter 7 bankruptcy. If the debtor has financial difficulties such that it will be overly burdensome or impossible to pay off the debt without help, a Chapter 13 bankruptcy may be a viable option.
Unlike a Chapter 7 bankruptcy whereby the debt is discharged without further payment, a Chapter 13 allows a debtor to repay a portion to all of their debt over the course of 3-5 years. The repayment plan is based upon one of four tests, whichever requires the debtor to pay out the most throughout the plan.
The first test is the Means Test. The means test deducts the debtor’s income from living expenses to figure the total monthly payment for the plan. If you pass the bankruptcy means test you should be qualified for a chapter 7 bankruptcy. If you do not pass the means test, you may have to file chapter 13 bankruptcy.
The second test is the Chapter 7 Liquidation Analysis. If the debtor has assets that would have been liquidated in a Chapter 7 bankruptcy, the debtor would have to pay at least the amount of non-exempt assets into the plan.
The third test is Disposable Income test. This test is also called the “I minus J test” because the repayment plan would be determined by subtracting the reasonably necessary expenses from J by the income reported on Schedule I.
The fourth test that could determine how much a monthly repayment plan would be is the Priority and Secured Debt Test. A trustee would look at Attorney’s fees that are included in a repayment plan, certain tax debt, any arrears on mortgage, car, child support, and/or spousal maintenance payments to determine how much the monthly payment plan would be over the course of the plan.
Utilizing a combination of these four tests, the court would ask for a total payout of whatever the highest amount is that the creditors would receive from the repayment plan
Chapter 13 bankruptcies are much more complex than the already complex Chapter 7 bankruptcy. Consulting with an experienced bankruptcy attorney to evaluate the feasibility of a Chapter 13 bankruptcy is always recommended.
Some bankruptcy lawyers in Arizona offer special deals on bankruptcy filings. Some offer Zero Down Bankruptcy options while others offer reduced fee bankruptcy filings. These bankruptcy firms are located in such Arizona cities as Avondale, Gilbert, Phoenix, and Tucson, Arizona. These $0 down bankruptcy firms are also available in Las Vegas and Henderson, Nevada.
