What’s My Chapter 13 Bankruptcy Monthly Plan Payment Going to Be?

When a client is considering filing for CH13 bankruptcy, one of the first questions asked is, “What will my CH13 Plan payment be”?

I almost always answer, “I don’t know yet.”

Why? Because of the complex way plan payments are determined.

There is a four-part test.

Unfortunately, after running all of the tests, you pick the one resulting in the highest payment.

Test No. 1: The Means Test. The Means Test was first imposed by Congress as part of the 2005 Bankruptcy Code Amendments. It replaced the case-by-case evaluation of actual ability to pay with an arithmetical formula that often has nothing to do with the debtor’s actual ability to pay. Almost universally panned as a failure, this test is nevertheless a legal requirement that must be complied with. I can’t tell you what the Means Test requires as a payment until after I’ve crunched all of the numbers, something I can’t do at the initial consultation.

Test No. 2: The Chapter 7 Liquidation Analysis Test. If your unsecured creditors would receive money from the sale of your non-exempt assets were your case a CH7 they have to get at least as much through your Chapter7 Plan.

For example, if you have $20,000 in net, non-exempt equity in your house, the CH13 Plan would have to provide for at least $20,000 in payments to your unsecured creditors.

Test No. 3: The Disposable Income Test. Take your net income (after taxes and other allowable deductions). Subtract your allowable expenses. If the number is positive, that’s what you have to pay your creditors on a monthly basis. Sometimes called the “I Minus J Test,” because Schedule I lists income and Schedule J expenses, this test comes closest to reflecting your actual ability to make the CH13 Plan payment.

Test No. 4: The Required Payments Test. You have to pay administrative expenses, such as legal fees and CH13 Trustee commissions, in full through the CH13 Plan. You have to pay all priority debt, such as domestic support obligations and certain taxes, in full. You have to pay the amounts necessary to cure mortgage and car arrearages. Add all these up, and that’s the minimum that must be paid under the Plan.

Note that tests 1 and 4 have nothing to do with your actual ability to pay.