The hallmark of a Chapter 13 bankruptcy case is the repayment plan that you’ll propose to the bankruptcy trustee, creditors, and the court. To a significant degree, two factors will determine your Chapter 13 plan type and monthly payment amount:

• your disposable income (the amount remaining after subtracting allowed expenses), and
• the value of any nonexempt assets (property that you can’t protect with an exemption).

A debtor whose income doesn’t exceed the state’s median income can submit a three-year plan. All others must last five years. (If you’d like to learn more about Chapter 13 bankruptcy, start by reading What Is a Chapter 13 Bankruptcy?)

Calculating Disposable Income

Every three- to five-year Chapter 13 repayment plan must fully pay the following:

• mortgage arrearages (if you’re keeping a house)
• car loan arrearages (if you’re retaining a car), and
• priority debt, such as domestic support obligations and most overdue tax debt.

But that’s not all. Most people must pay something to the holders of any remaining debt, such as medical balances, utility bills, personal loans, and credit card bills (your unsecured debt).

To determine the amount you’ll pay to unsecured creditors (called disposable income), you’ll subtract actual and predetermined expenses from your income, such as:

• mortgage or rent
• car payment and maintenance costs
• food, clothing, and utility expenses
• monthly tax and support obligations, and
• childcare costs.

The remaining amount is disposable income that must be paid to unsecured creditors. It’s distributed on a pro rata basis with each creditor receiving a portion equal to its percentage of overall debt.

After completing the repayment plan, most unsecured debt balances will get wiped out, but not all. For instance, even though unsecured student loans get paid with other unsecured debt—which will likely reduce your payment during the plan period—you’ll remain responsible for any remaining balance after the case closes.

This is a simplified explanation. To determine your disposable income, complete Chapter 13 Calculation of Your Disposable Income (Form 122C-2) or speak with a bankruptcy lawyer.

Determining Nonexempt Property Payments

Another factor that you’ll have to consider is this: At a minimum, your unsecured creditors must get as much as they’d receive if you filed for Chapter 7 bankruptcy.

Determining that amount is easier than it sounds. It’s the value of your nonexempt property (assets that aren’t protected by a bankruptcy exemption) minus the amount it would cost to sell the property (liquidation costs). Here’s how it works.

Debtors can protect (exempt) a certain amount of property in a bankruptcy case. The debtor’s state decides the type and value of exempt property and maintains lists in the state’s exemption statutes. Nonexempt property must be either:

• sold for the benefit of creditors in a Chapter 7 case, or
• paid to creditors in a Chapter 13 repayment plan (minus liquidation costs).

Figuring out how much nonexempt property you own will do two things: give you a good approximation of the minimum amount that your unsecured creditors must receive in a Chapter 13 plan and tell you how much you stand to lose in a Chapter 7 bankruptcy.

Example. Jesse’s monthly payments on $50,000 of unsecured credit card debt were more than he could pay each month and he wanted to file for bankruptcy. His primary asset was a vacation home worth $200,000 that he owned outright. He consulted with an attorney and found out that his state, like all others, didn’t offer an exemption that would cover the property, leaving all of his equity nonexempt. The attorney explained that if he filed for Chapter 7 bankruptcy, the bankruptcy trustee assigned to his case would sell it, pay off all of his creditors, and return the remaining balance to Jesse. If Jesse wanted to keep the property, he would have to repay all of his unsecured creditors the same amount—meaning in full—by filing a 100% plan (more below) in a Chapter 13 bankruptcy. To keep his payment down, however, Jesse could make monthly payments for up to five years.

Applying Both Factors

These two factors—your disposable income and the amount of your nonexempt property—will likely determine your plan type, and a bankruptcy attorney can provide you with the exact amount you’d pay in a Chapter 13 monthly payment.

• Typical repayment plan. Most debtors have some funds remaining after deducting allowed expenses from their income; however, the disposable income amount remaining for unsecured creditors is often relatively small (which is why some people claim that you can “pay pennies on the dollar in bankruptcy”), but not always.
• 0% repayment plan. Sometimes the debtor won’t have any discretionary income to pay to unsecured creditors. Typically, such debtors qualify for Chapter 7 bankruptcy but file for Chapter 13 bankruptcy to save property. In courts that allow these types of plans, a debtor can use a Chapter 13 bankruptcy to bring current an overdue mortgage or car payment and pay nothing to unsecured creditors. Even so, the debtor will still receive a discharge for qualifying unsecured debt (such as credit card balances) at the end of the repayment plan. (Learn more in What Is a Bankruptcy Zero Percent Plan?)
• 100% repayment plan. When a debtor’s nonexempt property exceeds the total amount of unsecured debt, and the debtor wants to keep all of the property, the debtor will likely have to repay 100% of the owed debt. (For more information, read What Is a 100% Repayment Plan in Chapter 13 Bankruptcy?) LINK

In the typical Chapter 13 bankruptcy plan, the amount a debtor will pay to unsecured creditors will depend on the debtor’s overall financial picture. The percentage a debtor must pay is often used as shorthand between bankruptcy attorneys and court staff to describe the plan. For example, “Ashley is paying into a 17% plan.”

Speaking With a Bankruptcy Lawyer

This article’s purpose is to provide general Chapter 13 plan information. Given that this bankruptcy chapter is especially complicated, potential filers are strongly encouraged to retain counsel.

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