How much you have to pay in a Chapter 13 Plan depends on many factors and frequently it’s difficult to estimate at the beginning of your case. There are several factors in computing your monthly payment.
Liquidation Value: Your creditors must be paid in the Chapter 13 at least as much as they would have been paid in a Chapter 7, so the liquidation value of your Chapter 7 case must be calculated. This in turn requires knowledge of the fair market value of all of your assets plus the net value after subtracting either the federal or state exemptions, which ever is most favorable to you. One of the benefits of Chapter 13 is that you get to keep your assets, even if they are not fully exempt.
Your Cash Flow: Your ability to pay is a big factor, but not a deciding factor. Your ability to pay is calculated in two different ways. First, your actual income and actual living expenses are used. Second, your actual income and then a strange amalgam of living expenses are used including IRS allowed living expenses, some of your secured debt, and some of your actual living expenses. These calculations get tricky in many cases.
Priority Claims: Priority claims must be paid in full, regardless. Priority claims include certain taxes, back child support, other domestic support orders, over payment of government benefits to you, criminal fines, and liabilities on account of injuries or death in connection with drugs or alcohol.
The Length of Your Chapter 13 Plan. Chapter 13 Plan vary between three to five years. If you make over the state’s median average for your family size, your plan must be five years. Plans cannot exceed five years. The length of your plan may affect the size of your monthly payments, particularly if you have priority claims.
Secured debts. Some secured debts must be included in the Plan. Under local rules in western Washington, all car loans must be included in the Plan. House loans that are in arrears also must be included. The arrears must be brought current in the Chapter 13 Plan unless the collateral is surrendered to the lender. Thus, the amount in arrears can affect Plan payments too. Also, most secured debt must be fully paid within the term of the Plan.
Law Office of John L. Hoffer
1712 Pacific Avenue, Suite 101
Everett, WA 98201