A Chapter 13 bankruptcy is a repayment case wherein the Chapter 13 debtor proposes repaying creditors over three to five years. Sometimes all creditors are paid during a Chapter 13 case, but sometimes only some creditors are paid. At the end of the case, all the remaining unsecured debts are discharged, even if they have only been partially repaid. In many cases only secured creditors (e.g. house, car) are paid and unsecured creditors (e.g. credit cards, medical bills) receive nothing.
How the amount of your monthly Chapter 13 payment is calculated is based on many factors. Most Chapter 13 debtors pay what they are able to pay, after deducting necessary living expenses. If you want to get an idea of your Chapter 13 payments, try the following calculation:
First, determine your net monthly income. Net income is gross income minus taxes and other deductions such as pension or health insurance.
Second, add up all your reasonable monthly living expenses such as rent/mortgage, car payments, utilities, insurances, gas and auto expenses, food, clothing, school lunches, and all your other living expenses. Do not include credit card payments or other debts. You may have to give up certain unnecessary “toys” like a boat or vacation home that is not income producing. Do not include these payments in your monthly expenses.
Third, subtract all of your monthly living expenses from your monthly net income. The difference is what you can afford to pay each month to the Chapter 13 trustee. This money goes to catch up any secured arrearage on your house or car, repay priority unsecured debts like owed taxes, or repay your unsecured creditors.
If you are a high-earning debtor who is subject to the bankruptcy “means test,” you may be forced to pay more than you can anticipate through the above calculation. An experienced bankruptcy attorney can guide you through the means test and the repayment plan process. Your attorney is skilled at applying the bankruptcy rules to determine a repayment amount you can afford, while achieving your financial restructuring goals.