How to Determine Chapter 13 Plan Payment

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    • 1). Classify your debts into one of three categories--priority, secured and unsecured. Priority debts are specially classified under bankruptcy law, i.e. taxes and child support. These are debts that must be repaid first. Secured debts are backed by collateral, such as a mortgage or car loan. Unsecured debts are not backed by collateral, such as credit card debt.

    • 2). Make a list of all your current monthly expenses, including your current mortgage payment, car loan, utilities, etc. Compare the total of your monthly expenses with the amount of income you have coming in from all sources, including employment, rental income, retirement income, etc. If you are married, you will need to include your spouse's income as well, unless you are not filing for joint bankruptcy.

    • 3). Determine the median income for a family of your size in your state. This information can be obtained from the U.S. Census Bureau. Compare your current monthly income (an average of your previous six months' income) against the median. If your income is above the median for your family size, then under the bankruptcy code you have sufficient disposable income to repay your debts. If your income is below the median, then you may need to consider filing under a different chapter of the bankruptcy code.

    • 4). If it is determined that there is sufficient disposable income to repay your debts, you need to decide on a repayment term. This may be three to five years under Chapter 13. Take a look at your budget and look for areas where you can cut spending. You need to allow for as much money as possible to repay your debts without putting a strain on you financially. Divide the total amount of debt you have outstanding vs. the amount of disposable income you have available each month. This should give you an idea of how long it will take you to pay off your debts. If you cannot repay your debts within 36 to 60 months, then you either need to increase your plan payment or consider alternatives to Chapter 13.

    • 5). If your disposable income is sufficient to repay your debts within the required time frame, you need to determine how your payment will be applied. Priority debts must be repaid first and in full, followed by secured and unsecured debts. Secured debts may be reaffirmed and restructured for a lower payment, but your creditors must agree to do so. Unsecured debts may be settled for less than what is owed, and these should be factored in last when creating your repayment plan. Once priority debts have been repaid, you may choose to make additional payments outside your repayment plan.

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