When a Client is considering a Chapter 13 bankruptcy, the main thing they want to know is what their Plan payment will be. It is a very valid question, since they can’t make a decision without having that knowledge of whether Chapter 13 is even a realistic option for them.

A. How big will my Plan payment be?

The Plan payment must at least cover the necessary debts.

“Necessary Debts”

Mortgage arrearages, car payment arrearages, Trustee fees, remaining attorney fees, priority taxes. These need to be paid in entirety through your proposed plan. As such, the plan payments have to be large enough to at least cover those payments. Let’s say that your proposed Plan payment equals X for 36-60 months. This X payment times 36 or 60 months of payments, should cover all the “necessary” debts – the smallest pot.

Example: if you propose a 60 months plan and your mortgage arrearage on your first mortgage is $36,000, Trustee fees are $4,000, Attorney fees are $2,000 and Priority taxes are $12,000. The minimum your X times 60 months should be is $54,000. Therefore the minimum Plan payment you can propose to allow for a feasible plan is $900/month for the next 60 months. While there could be some step up proposals if you adhere to certain rules, pay attention to the size of the pot and make sure that the plan you propose covers the “necessary debts.”

Therefore, from this example you have to be able to make a plan payment of $900 every month in order to have a successful chapter 13 plan. Keep that in mind when reading the following section.

Note, in the Central District of California, regular monthly mortgage payments as well as car payments that become due after the case is filed are paid directly to the lender. As such, they do not go into the small pot calculations, just the arrearages for the same.

B. How little can my Plan payment be?

The rule is that if you propose to pay less than 100% to your creditors, your plan has to commit your “entire disposable income” to the payments. You have to make best efforts to repay all your creditors.

Length of Plan

The length of you plan will usually depend on whether you are over the median or under the median on Form 22C. If you are over, then the plan will definitely be 60 months. If under, then plan duration will be 36-60 months.

Form 22C may also dictate in part what the plan payment will be. At times, it will give a figure of disposable income that will have to be balanced with the figure you receive from reviewing your current income and expense schedules (Schedule I and Schedule J). However, most of the time Form 22C will have a negative or small figure if filled out correctly in a Chapter 13 and Schedule I minus Schedule J will govern the Plan payment amount.

Schedule I is the Schedule of your income and for most people that receive a paycheck that figure will be fixed and you won’t be able to manipulate it by much. However, Schedule J, is a schedule of your expenses. While some expenses are a must and are fixed, certain things like cable and socializing as well as a third car can be reviewed and adjusted. Further, the expenses must be reasonable and an experienced bankruptcy attorney will be able to easily spot expenses the Trustee or Judge will take issue with and adjust Schedule J accordingly to prevent future issues.

Note, because of that minimum payment discussed in Part A, your Schedule I minus Schedule J, have to leave at least that amount allowing you to propose a successful plan. In the above example, your regular monthly income minus your expenses should still leave $900 for you to propose a feasible plan.

If Schedule I minus Schedule J figure is less, your situation is not hopeless if you can do the following:

- Increase income by getting a tenant.
- Have your family contribute money to assist you in proposing a feasible plan.
- Obtain an additional job.
- Reduce your expenses, by removing a car payment, cable expenses, etc.

Be honest with yourself – can you really make that Plan payment?

I fully understand that by the time people consider bankruptcy, they have already reduced their expenses to the max. As such, when I review a case for a potential Chapter 13, I want to make sure that the client can propose a plan they can live with. If the payment is beyond what you can realistically pay, in most situations, proposing a Chapter 13 Plan is a waste of time and money and other options should be considered. Having said that, sometimes people file a Chapter 13 to buy some time, but in that situation the Client should weigh the benefits of added time with the money they will spend on attorney and court fees.

This is complicated and is provided on the blog mainly to illustrate that the question requires a set of complicated calculations as well as knowledge of various rules. As such, it is important to contact a bankruptcy attorney thoroughly familiar with the workings of Chapter 13 bankruptcies. I would say that under most circumstances it is virtually impossible to have a successful Chapter 13 without the help of an experienced bankruptcy attorney. I have worked with several clients trying to help them after their case has been dismissed or messed up by a petition preparer. They wasted time, money and incurred unnecessary stress. Please don’t try to save a little and risk losing a lot.

Feel free to contact my office for a free consultation so that we may discuss your options at (310)481-5098.