How Is My Chapter 13 Bankruptcy Payment Calculated?
One of the most frequently asked questions that I get asked by the firms Chapter 13 clients is: How does my payment get calculated? Trust me, there is no great mystery behind this, and many attorneys will struggle with this question, but the answer is rather simple. In most cases, bankruptcy payments to unsecured creditors are based on three tests, whichever is higher, or 100% to the unsecured creditors:
1) Liquidation: This refers to the minimum your creditors have to receive based on the value of your assets and how much of that value we can protect using exemptions. Any value that we cannot protect has to be paid out to your creditors during your case. That could be any amount and depends on the value of your assets.
2) Disposable income: This refers to the concept that what you can afford to pay based on your income and reasonable living expenses must get paid in the plan. There are two ways of calculating disposable income, and whichever is higher must be paid. The first way uses your actual expenses (which are mainly only lowered if the court would deem them unreasonably high). The other way uses a form that uses mostly IRS standard expenses, but does include some actual expenses for things like medical, child care, etc.
3) 100%: The third way is if you pay all of your unsecured creditors in full without interest or penalties, the court could let a Debtor pay less than liquidation and less than disposable income in this case.
Once the amount to unsecured creditors is accounted for, other required payments are added.
For example, in all cases the chapter 13 trustee receives a fee for his or her services based on the amount of money distributed under the plan. The percentage that the trustee receives varies depending on what district you are in, so be sure to check with your attorney or local trustee for the appropriate percentage.
Additionally, some cases require payments to other creditors who must be paid. For example, priority creditors, such as for back child support or taxes to the IRS, and any secured creditor getting paid through the plan, must be paid through the plan. Make sure to talk to your attorney to see if either of these payments will count against your required payment to unsecured creditors in your particular case.
I hope this helps you understand the way your payment is calculated.
This blog was written by Attorney Jeremy Iskin Esq. of The Dellutri Law Group, P.A.. Mr. Iskin handles the Ch. 13 Bankruptcy cases for the firm.
