We understand that for those just beginning the chapter 13 process, the prospect of debt repayment can bring anxiety and uncertainty. To help you feel comfortable with the repayment process, we’ll shed light on how chapter 13 payments are calculated, and give valuable insight on what to expect.
Understanding Repayment Length
Before you can understand how chapter 13 payments are calculated, it’s essential to know more about repayment length, as this is a major determining factor of your monthly payment amount. With chapter 13 bankruptcies, monthly payments are made throughout a three to five-year period. You work with your attorney to submit a repayment plan for the court’s approval, detailing your plan to repay creditors over three to five years.
Your monthly income—in relation to the median income in the state where you reside—typically determines the length of time that your personalized repayment plan lasts. For those earning below the median income in their state, a three-year plan will likely be the length of their repayment plan. However, if you earn more than the state median income, you’ll pay into a five-year plan. This length of time can be modified in either scenario with the court’s permission. The approved length of repayment provides the basis for how your chapter 13 payment is calculated.
Minimum Monthly Chapter 13 Payment Amounts
To determine your monthly payment amount, you must complete the chapter 13 means test as a part of your paperwork submission to courts. This not only determines how long your repayment plan will last but also the amount you must pay non-priority unsecured creditors in your bankruptcy.
While you always need to consult with a trusted attorney for specifics related to your financial circumstances, keep in mind how different forms of debt will influence your monthly payment amount:
- Secured Debts: Aside from mortgage arrears or lien stripping, you are typically required to pay off the entire loan through your repayment plan.
- Unsecured Debts: Some of this debt can be discharged in chapter 13 bankruptcy. The chapter 13 means test will help determine what portion of this debt must be included in your chapter 13 payment calculation.
- Priority Debts: Debts such as alimony, child support, or certain taxes are non-dischargeable in bankruptcy and must be repaid during your repayment plan.
- Fees and Interest: Bankruptcy trustees gain a percentage of liquidated assets, as well as all the money they distribute to your creditors. Interest must also be paid, which is typically just slightly above the national prime rate. In addition to debts, both factors will influence how chapter 13 payments are calculated in your case.
Let Us Help You Calculate Your Chapter 13 Payment
At Parker & DuFresne, we are in the business of bringing financial restoration to clients across Northeast Florida. We understand that for chapter 13 bankruptcy clients, having the right repayment plan is one of the most important keys for a successful outcome. We specialize in bankruptcy law and take an individualized approach to develop a tailored plan of financial restoration for every client. To learn more about how chapter 13 payments are calculated, contact us to schedule your free consultation today!