Can Your Payments be More than Your Debts in a Chapter 13?


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This question was recently asked on a bankruptcy forum website by a potential filer: “I wanted to ask a hypothetical question. Say the lawyer tells me my monthly payments for 5 years is $500/month. Well after 60 payments that would be $30,000!!! I only have $18,000 to claim. Is that even possible?”

A Chapter 13 bankruptcy, often called the wage earner’s plan, is a bankruptcy where a debtor determines how much disposable monthly income (DMI) he or she has to service unsecured debt after taking normal living expenses and secured debts into consideration. Once the DMI is determined, the filing debtor proposes a 3 or 5 year payment plan to a bankruptcy court in order to pay all or a portion of the unsecured debt.

If you have DMI that will support paying all of your debt during the time allotted in the plan, plus paying the bankruptcy trustee his or her percentage for handling the case, and in some cases paying the remainder of your lawyer fees, you are in a 100 percent pay back plan. If you have DMI that will allow you to pay only a portion of your debts, plus pay the bankruptcy trustee and your lawyer, you are in a partial payment plan.

No plan may go more than 5 years without the expressly written consent of the bankruptcy court, and any debt left after a partial payment plan will be discharged in a Chapter 13 just like in a Chapter 7.

In answer to the blogger’s question: “is that even possible,” the answer is, “not likely.” Even with the trustee’s percentage and lawyer’s fees built into the plan, the lawyer’s fees, unless there is complications in the bankruptcy case, will not not likely run more than $5,000, and the trustee works off a certain percent of what has been paid. The national average legal costs of a bankruptcy lawyer for filing a Chapter 13 in the United States is roughly $3,000.

Can your payments be more than your debts in a Chapter 13? Technically, “Yes.”

When you include the court costs, lawyer fees, and trustee percentage, and all your creditors file a claim for their debt, you can end up paying 100 percent to your creditors, court costs, the trustee’s percentage, and your bankruptcy lawyer fees. All of that adds up to paying more than your original debts.

Nevertheless, all of this assumes you have the income to support a Chapter 13. If you do not have the DMI to support a 100 percent pay back of your debts during the bankruptcy, of course, you will not be paying back more than what you can afford to pay, and the pay back can be less than the original debts owed.

The answers I have provided are the simplified version of everything going right in a Chapter 13 case. Everyone should be aware that bankruptcy laws are complicated and not everything always goes as planned. Generally, the more problems you have in a bankruptcy case, the more costs that are going to be associated with the case.

An experienced Chapter 13 bankruptcy lawyer can normally help you in determining the right pay back plan for your DMI in filing a Chapter 13.

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