How long will I have to make payments and how are the payments calculated for my Chapter 13 Bankruptcy?
The length of time that you will have to make payments in a Chapter 13 Bankruptcy situation depends upon the amount of your monthly income as compared to the average median income in your state. If your monthly income is below the state median, the debtor can choose the length of the plan between 3 and 5 years. If your income is above the state median, payments will be set for 5 years. Changes made to the Chapter 13 Bankruptcy law in 2005 set a maximum limit for payments to no more than 5 years. However, if you pay all of your creditors who filed a claim in full, the case will be over when all claims are paid. This means in some cases, even though the income requires a 5 year plan, the case can get discharged and closed in a shorter period of time.
Your monthly plan payment is determined by the chapter 13 plan that you and your bankruptcy attorney work out and file with the court. The amount of the monthly chapter 13 plan payment can depend on several factors: one factor is the “means test”, it is actually not called means test, but it is very similar to the means test in a chapter 7. However, in a chapter 13, you are able to deduct some expenses you can’t deduct in a chapter 7 means test, for example voluntary retirement contributions. The correct name in a chapter 13 is “Current Monthly Income and Expense Statement”, since this is far too long, calling it incorrectly “means test” seems to be acceptable. If the means test calculation shows disposable income, this is the amount you would have to pay to unsecured creditors. Another factor is the liquidation analysis: if you have un-exempt equity in schedule C, this is the amount a chapter 7 trustee would request from you to pay to your creditors. In a chapter 13, you also have to pay that amount to unsecured creditors. You do not have to double the amount from your means test and the liquidation analysis. Whatever amount is higher, has to be paid to unsecured creditors. One important thing to mention is payments to student loans. In a chapter 13 you can continue to pay your monthly student loan payments through your chapter 13 plan. This is an unsecured payment that comes off your guarantee from your means test. However, if you choose to continue with your student loan payments (which you should), do not come off the guarantee from the chapter 7 liquidation analysis. Why is this? If you would file a chapter 7 and the chapter 7 trustee would distribute the money to your creditors, he would not differentiate between unsecured creditors. Each unsecured creditor would be treated the same and would be paid in relation to the amount you owe them. If the guarantee to unsecured creditors is based on the chapter 7 analysis, it should not be different in a chapter 13.
In the St. Louis, Missouri area, your first monthly payment is due within 30 days after filing of the bankruptcy petition, not after filing of the plan. This can be different in other districts. Every following monthly payment is due at the same day each following month. Every so often, clients wait until the last day, of the 30 day period to make the payment. It is advisable to set up a wage order, so that the monthly plan payment is deducted from your pay check every time you get paid so that it is easier to budget. The payments if not made through the wage order need to be mailed to the trustee in form of a money order or cashier’s check, no personal checks or money will be accepted. The appointed trustee, in St. Louis Mr. LaBarge, on the Illinois side, Mr. Simon, will then make payments to those creditors listed in your plan and to the creditors who filed claims.
In St. Louis, if a creditor did not file a claim, the trustee will not pay the creditor, even though you listed the creditor in your plan and the plan is confirmed by the court. It is important that your bankruptcy attorney in St. Louis reviews the claims to make sure every creditor you want to get paid, is actually receiving money from the trustee. If your attorney or you discover that no claim is filed, you or your attorney would need to contact the creditor or file a claim on behalf of your creditor.
Your income and expense budget must leave sufficient money to make the plan payment to the trustee. On Schedule I, you list all of your monthly income.
Some items that do not occur monthly but need to be included are any form of quarterly, semi-annual, or annual payments like life insurance policies, automobile insurance, or security alarm systems in your home. The payments will be averaged out into a monthly expense for your worksheet. If your property tax is not escrowed into a mortgage payment, the yearly amount that you pay will also be averaged into a monthly expense.
All debt payments will be included in your chapter 13 plan payment and will not be listed on Schedule I. The only exceptions are rent or mortgage payments for your residence if you choose to pay these payments directly and not through the chapter 13 trustee. These payments have to be paid through the trustee on the St. Louis Metro East side, if you have an arrearage on your mortgage.
Routine items that tend to be overlooked, but need to be included on the expenditure sheet are dry cleaning, haircuts, any special therapy that is not covered by health insurance, daily newspapers, and trash collection fees if you are not serviced by your local government. List also payments made by your non-filing spouse. All other payments that are included in your chapter 13 plan payment, such as credit card and medical bills, even though they might not get paid in a chapter 13 plan, are not to be listed on your Schedule J.
Items that may not occur on an annual basis but will occur at some point during a bankruptcy process and need to be averaged out into a monthly expense would be vehicle inspections, where required, vehicle tag and driver license renewals. One additional area of major concern, if applicable, is if you have an adjustable rate mortgage and cannot obtain a refinanced fix rate, the higher interest rates need to be factored into the monthly expenses for those years.
Once you have a list of all potential expenses, that amount is deducted from the monthly income figure and you will have a reasonable amount of disposable income that will be available for the plan payment. Some trustees permit a small amount of income to be retained, normally around $100 per months for unexpected expenses. If you disposable income is not sufficient to make the plan payment, the trustee will file an objection to confirmation of your plan stating that you have insufficient income to make the plan payment. However, this objection will be overruled by the court in St. Louis if you are current with your plan payments at the time of the confirmation hearing and your plan will be confirmed. However, if your budget is too far off, that it is impossible to make plan payments, the trustee’s objection must be cured before the plan can be confirmed. This is true even if you are current at the confirmation hearing.