What to Know About Your Chapter 13 Payment Plan

Two two main features of a Chapter 13 bankruptcy is the bankruptcy stay and the repayment plan. This allows you to make one manageable monthly payment that goes towards some or all of your debt. At the end of your payment plan, remaining debt is discharged subject to a few bankruptcy rules. The Chapter 13 plan can be a savior for those that feel like they will never be able to pay off their debt. However, there are a number of things you should know about your payment plan before filing for bankruptcy. In this guide, we will try to give you an understanding of your payment plan, allowing you to make the right decisions going forward.

Making Sure You’re eligible for a Payment Plan

First, you’ll need to make sure that you are eligible for a payment plan. This is relatively simple, as there are only a few requirements. These are:

• You must have less than $526,700 in unsecured debt.
• You must have less than $1,580,125 in secured debt.
• You must complete a Chapter 13 credit counseling course from an approved agency within 180 days before filing. 
• You must be able to prove that you have a steady source of income to fund a repayment plan. 

As long as all of the above are true, you are eligible to participate in a Chapter 13 bankruptcy payment plan.

What Is the Average Monthly Payment for Chapter 13?

The average monthly payment for Chapter 13 can vary widely. This is because your monthly payment is determined by certain factors, including:

• The amount of debt you have.
• Your amount of disposable income, calculated as your income minus your necessary living expenses. A higher disposable income leads to a higher monthly payment. 
• Whether your debt is secured or unsecured.
• Is the debt considered priority unsecured debt or general unsecured debt.
• The value of your assets.

This means that no two people will have the same monthly payment amount. It also means the mix of repayment can change.  For example, one person may repay $10,000 in overdue income tax and discharge $50,000 in credit card debt.  And another person repays $0 in income tax and repays only $1 in credit card debt.  If you consult with an experienced bankruptcy attorney, they will be able to give you a more accurate estimate based on your specific situation. 

How Long Does a Chapter 13 Payment Plan Last?

A Chapter 13 payment plan usually lasts between 3 and 5 years. If your income is below the median income in your state, a 3 year plan may be an option.  If your income is above the median income in your state, the plan will likely be a 5 year plan. However, some people who qualify for the 3 year plan may opt for the 5 year plan to allow them to have a lower monthly payment. Furthermore, others may make higher payments than required, allowing them to finish their plan sooner than anticipated. 

What Happens If You Miss Payments?

You should do everything in your power to avoid late Chapter 13 payments. Missing payments can result in your case being dismissed and losing all of the protections provided by bankruptcy. Losing these protections means that collection efforts can begin again immediately. Also, any property you have a secured debt on, like a mortgage or car loan, could be seized by the creditor after dismissal. Basically, missing payments will put you right back where you were before filing for bankruptcy. Additionally, it is unlikely that you will be able to file again anytime soon unless you or your attorney petitions the court and asks for an extension of the bankruptcy stay.  

What to Do If You Can’t Make Payments

If you find that the payments are untenable for you, you do have options. First and foremost, it is vital that you inform your attorney and bankruptcy trustee immediately. Often, an alternative can be worked out. They may make a plan to help you get caught up on payments. Alternatively, they may be able to modify the plan.  This happens when there is an interruption in income such as a job loss or prolonged illness.  The attorney may ask the court to reduce payments or extend the plan length. The important thing to remember is to be proactive. If you simply stop making payments, none of these options will be available to you and your case will likely be dismissed. 

Tips for Successfully Completing Your Payment Plan

There are things you can do to give yourself the best chance of successfully completing your Chapter 13 bankruptcy payment plan. This includes:

• Budget: Create an in-depth budget. Include all necessities and other expenses. Make sure you stick to this budget. If you do, you will always have the money needed to make your payments.

• Emergency Fund: Slowly set aside money for an emergency fund. You can use this to cover large, unexpected expenses like a car or home repair. Without an emergency fund, these unexpected expenses can derail your payment plan.
• Avoid New Debt: Under no circumstances should you take out new loans, use credit cards, or enter into leases without first getting approval from the bankruptcy court and/or Chapter 13 Trustee. Note that it is understood by all parties that you may need  loan for a reasonable motor vehicle in order to have transportation to maintain employment.  The Chapter 13 trustee routinely approves vehicle loans.  Make absolutely sure that you can afford the payments on this new debt as well as your monthly plan payment.

As long as you follow these tips, you should make it through your payment plan. Just remember to make your payments on time and the plan will be over before you know it.