In Chapter 13, your lawyer proposes a plan for the Court to approve.
The plan is a written document, usually of about five pages. If the plan complies with the
bankruptcy laws, your creditors cannot refuse to accept it. This is the
primary power of Chapter 13 bankruptcy.
If you file Chapter 13, you make the monthly payment set forth in your plan.
This money is sent to the Chapter 13 trustee, a quasi-governmental official, who holds the money pending
the court's approval of your plan. Once your plan is confirmed by the court, the
trustee begins making payments to your creditors in
the manner provided in your plan.
The Applicable Commitment Period
How long does a plan last? This is determined by your income and household
size. If you are above-median income based on household size, your plan is
five years (60 monthly payments). If you are below median income, your
plan is three years (36 monthly payments). During your applicable
commitment period, you pay your "projected disposable income" into the plan.
Projected Disposable Income
This is the central idea of Chapter 13. The idea is that
you devote your excess income to your plan for a certain period of time, and
then you get rewarded with debt relief. Your projected disposable income
is calculated with the means test as well as with a more simple and intuitive
budget analysis. The result of this analysis is the amount that the system
deems it fair for you to pay into your plan--after what you need to pay for
housing, transportation, food, taxes, medical expenses, utilities and all the
other reasonable and necessary expenses of life are deducted. That amount
is called your "projected disposable income."
How is a Chapter 13 Payment Amount Determined?
Your payment will depend on your
income, assets, expenses and debts, but the key factor is your "projected
disposable income." That is number is based on a means
test and budgetary analysis. These are two separate tests and incorporate your income, expenses,
secured debt payments and several other variables.
We usually can tell you approximately what your payment
will be when you first contact us. Determining the amount of a Chapter 13 payment is
one of the specialized parts of the process, and it is something we have a lot
of experience with. It is important to have an honest lawyer who really knows Chapter 13 law and the
permissible means test deductions. Many of these deductions are not common
knowledge among novice practitioners in the field.