Calculating Monthly Payments in Chapter 13 Bankruptcy

A Chapter 13 bankruptcy allows a debtor to restructure his debts and pay them off over a three to five year period.  A debtor’s ability to make monthly payments in a Chapter 13 case is critical to his receipt of a discharge. 

What is the Chapter 13 Plan?

At the heart of every Chapter 13 case, is the Chapter 13 plan.  The Chapter 13 plan sets forth the debtor’s proposal for repaying some of his debts, including attorney’s fees and administrative costs of the case.  The Bankruptcy Code requires a Chapter 13 debtor to allocate 100% of his monthly net disposable income for payment to creditors. 

How is Monthly Net Disposable Income Calculated?

Currently monthly income is the basis for determining monthly net disposable income.  Schedule I of the bankruptcy petition requires a debtor to disclose all sources of disposable income. However, the following sources of income are excluded: 

• Social Security;
• Child support payments;
• Foster care payments;
• Disability payments for the dependent children of the debtor;
• Domestic support obligations payable by the debtor; and
• Repayment of pension loans and pension contributions.  

The debtor is allowed to subtract from his gross monthly income federal and state taxes, social security taxes, union dues, insurance, and other payroll deductions.  The difference represents the debtor’s net monthly income. 

On Schedule J of the bankruptcy petition, the debtor must itemize his monthly expenses.  It is important for a debtor to realistically asses his monthly expenses and to accurately itemize them.   The debtor’s net monthly income must be carried over to Schedule J.  The debtor’s monthly expenses are then subtracted from his net monthly income.  The difference represents the debtor’s monthly net disposable income.  If the difference is a positive number, that is the amount which must be paid into the Chapter 13 plan each month.  If the difference is a negative number, the debtor will not be able to proceed with a Chapter 13 bankruptcy. 

Getting Legal Help

The Chapter 13 plan is arguably the most important element of a debtor’s Chapter 13 case.  If a feasible Chapter 13 plan is not filed or if the plan is not properly structured, the case will be dismissed.  Therefore, if you are considering filing a Chapter 13 case, you should hire an experienced bankruptcy attorney who will draft and file your petition and schedules, the Chapter 13 plan, and all other documentation required by the Bankruptcy Code.  Your bankruptcy attorney will represent you in all phases of the bankruptcy proceedings.