How Much Money Will I Need to Put Toward a Chapter 13 Repayment Plan?

 Posted on July 19, 2022 in Bankruptcy

If you are considering bankruptcy, you generally have two options. Chapter 7 is often the simpler option, but while it may allow a bankruptcy to be completed and debts to be eliminated within a few months, it may result in the loss of certain assets. If you want to avoid losing property such as your home, or if you are unable to pass the means test allowing you to qualify for Chapter 7, you may opt for Chapter 13 bankruptcy. In this type of bankruptcy, you will put a certain amount each month toward a repayment plan, and your unsecured debts will be discharged once the plan is complete. When planning your Chapter 13 case, it is important to understand how the amount you will pay toward your repayment plan will be determined, as well as how long these payments will last.

Calculating Disposable Income

In a Chapter 13 bankruptcy, you will be required to put your disposable income toward repaying as much of your debts as possible during your repayment plan. Your disposable income is calculated by taking your average monthly income from all sources and subtracting the following deductions:

• Housing expenses - This includes mortgage or rent expenses, as well as utilities and operating expenses. Rent, utilities, insurance, and similar expenses are usually determined based on the average expenses incurred by a family of your size in your county. However, the actual amount you put toward mortgage payments for all home loans will be used to calculate your disposable income.

• Transportation expenses - For each vehicle you own, the amount you pay toward an auto loan will be deducted. If you lease a vehicle, IRS local standards will be used to determine the amount you are expected to pay. Standard operating costs for your region may also be deducted. If you do not own a vehicle, or if you regularly use public transportation, you may deduct public transportation expenses, although these cannot exceed IRS local standards.

• Food, clothing, etc. - You may deduct expenses based on IRS national standards for the number of people in your household.

• Health care - The costs of health insurance, disability insurance, and money put into a health savings account for you, your spouse, and your dependents may be deducted. You may also deduct an amount of out-of-pocket health care costs for each member of your family based on IRS national standards, as well as other additional health care expenses that are necessary. You may also be able to deduct reasonable expenses that you pay to provide care for a family member who is elderly, disabled, or chronically ill.

• Taxes - Federal, state, and local income taxes, Social Security taxes, and Medicare taxes withheld from your income may be deducted. If you expect to receive a tax refund, the amount of the refund must be divided by 12 and subtracted from the amount of taxes that are deducted each month.

• Involuntary deductions from income - Any amounts withheld from your pay that are required by your job, such as union dues, expenses for uniforms or equipment, or retirement contributions, may be deducted.

• Court-ordered payments - Child support, spousal support, or other payments ordered by a court may be deducted.

• Life insurance - The monthly premiums for policies in the name of you and your spouse may be deducted.

• Childcare - Monthly payments for daycare, preschool, or babysitters for your children may be deducted.

• Educational expenses - Monthly public or private school expenses for children under 18 may be deducted, up to a maximum of $189.58 (this amount is scheduled to be adjusted in 2025). Educational expenses for yourself that are required for your job or costs related to education for a child that is physically or mentally disabled may also be deducted.

• Optional telephone services - While basic telephone, cell phone, or internet service may not be deducted, since these costs are included in monthly utilities, optional services that are necessary for the health and welfare of family members or that are required to earn income may be deducted.

• Charitable contributions - Regular contributions to churches or other charitable organizations may be deducted, although these deductions cannot be more than 15 percent of your gross monthly income.

If your income is below the median income for the number of people in your household in your area, you will put your disposable income toward your repayment plan for a total of three years. If your income is above the median, your repayment plan will last five years.

Contact Our Mecklenberg County Chapter 13 Bankruptcy Attorney

If you are planning to file for Chapter 13 bankruptcy, you will want to make sure all applicable factors are considered as you calculate your disposable income. Money may be tight as you make payments for three to five years, but once you have completed your repayment plan, your remaining unsecured debts will be discharged, allowing you to move forward successfully and maintain financial stability. To learn how Blossom Law PLLC can help you complete the bankruptcy process, contact our Charlotte Chapter 13 bankruptcy lawyer today at 704-256-7766 and set up your free consultation.

Sources:

https://www.uscourts.gov/forms/means-test-forms/chapter-13-calculation-your-disposable-income

https://www.law.cornell.edu/uscode/text/11/1325

https://www.thebalance.com/how-much-will-my-chapter-13-plan-payment-be-316209