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  • Calculating a Chapter 13 Plan’s Monthly Payments and Duration

A Chapter 13 bankruptcy plan is a court-approved schedule that allows individuals with regular income to repay a portion of their outstanding debts over a period of time, typically three to five years. How the plan is structured and how payments are calculated depends on the debtor’s overall financial situation.

There are three types of debt considered in a Chapter 13 bankruptcy:

  1. Priority debts — These include certain taxes, child support, alimony, and administrative costs of the bankruptcy. Priority debts must be paid in full during the plan period.

  2. Secured debts — These are debts backed by collateral, like a mortgage or car loan. The plan must specify how arrears (past-due amounts) on these debts will be repaid, but regular payments must continue.

  3. Unsecured debts — These include credit card debt, medical bills and other obligations without collateral. The plan proposes to pay these creditors a portion of what is owed, with the remaining balance being discharged at the end of the plan if certain conditions are met.

The Chapter 13 repayment plan is filed with the bankruptcy court, and creditors are given a chance to object. Once confirmed by the court, the debtor makes a single monthly payment to a bankruptcy trustee, who then distributes funds to creditors according to the plan’s terms.

The duration of the 13 plan is typically three or five years. The key factor determining duration is how the debtor’s median income compares to the median income for a similarly sized household in the state:

  • Above-median income — If the debtor’s income is above the state median, the plan must run for five years, unless all debts are paid off earlier.

  • Below-median income — If the debtor’s income is below the median, the plan can be as short as three years, but may run longer up to five years if necessary to pay required debts in full.

This structure ensures higher wage earners commit more resources over a longer period, while those with lower incomes can seek a quicker resolution.

Monthly payments in a Chapter 13 plan are primarily based on the debtor’s disposable income — that is, the amount left after: 

  1. Assessing income — All sources, including wages, side jobs, or rental income, are included.

  2. Subtracting allowed expenses — Debtors subtract necessary living costs, guided by IRS standards and local benchmarks (e.g., housing, food, transportation).

The disposable income, plus any additional amounts needed to pay required debts (like mortgage arrears), forms the monthly payment. The plan must show that priority and secured debts are paid in full and that unsecured creditors receive at least as much as they would have in a Chapter 7 liquidation. A knowledgeable Chapter 13 bankruptcy attorney can help you devise a plan that the bankruptcy court will find fair and feasible.

Marlin Branstetter, Attorney at Law in Anaheim, California has the experience and knowledge to advise you on how Chapter 13 can allow you to keep your property while repaying debt over time. Call me at 714-276-8589 or contact me online to schedule a free initial consultation.