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Coming Up With a Repayment Plan

The heart of a Chapter 13 bankruptcy is your repayment plan. It shows how much income you have to repay your debts, how long the plan will last, and what debts (and what proportion of them) you propose to repay.

As mentioned, there is no set percentage of your debt that you must repay. It all depends on how much disposable income you have available for this purpose.

A Chapter 13 repayment plan lasts several years: three if your income is below the median income for your state and five if it is over. (See Ch. 6 for how to determine whether your household income is above or below your state’s median.)

Your plan must show that your income (plus proceeds from any property you plan to sell) will let you do all of the following:

• stay current on all your contractual obligations such as a mortgage and car note (unless you plan to voluntarily give the house or car back to the lender)
• pay off any arrears you owe on these contractual obligations
• meet your normal monthly expenses
• pay off certain priority debts, such as back taxes and child support or alimony, in full over the life of your plan
• devote all of your disposable income to repayment of a percentage of your unsecured debt, such as credit card and personal loan debt
• pay your unsecured creditors at least as much as they would have gotten had you filed for Chapter 7 bankruptcy—that is, the value of your assets that would be sold in a Chapter 7 bankruptcy to pay your creditors (see Ch. 6), and
• pay the bankruptcy trustee (the official who collects the money you pay under your plan and distributes it to your creditors) a fee of about 10% of all payments you make under the plan (this amount can be large or small, depending on whether you pay your current mortgage payments directly to your lender or through the trustee).

Not everyone can propose a plan that the court will approve. For example, a plan must provide for paying priority debts in full. So if you owe $50,000 in back taxes, and your disposable income would pay only $25,000 of the taxes over the life of your plan, the judge will reject the plan.

More information on repayment plans. See www.nolo.com for more on the requirements for Chapter 13 bankruptcy plans.