The Percentage Will Depend
Many clients want to know what percentage is going to get paid back to creditors if they file chapter 13 bankruptcy. The answer to this question depends on a number of different factors. First, the debtor’s income is factored into the equation right from the start. Second, we have to take a look at the debtor’s monthly expenses or budget items. The difference between the income and expenses is typically what is paid back through a chapter 13 repayment plan. That difference is known as disposable monthly income or DMI.
How The Percentage Is Calculated
Now the amount that needs to get paid is the disposable monthly income over a period of anywhere from 3 to 5 years. The length of the payment plan is dependent on the general income of the debtor as well as the amount of debt. You might have a case where someone is paying back 100% of their creditors because they have available income per month to pay back a 100% dividend over a three to five-year period. You may also have a situation where someone is going to pay back less than 100%, sometimes as little as 10% to those unsecured creditors that actually file claims. If an unsecured creditor does not file a proof of claim and the debtor makes all of the payments under the confirmed plan and receives a discharge, then those unsecured creditors that did not file claims are eliminated. So when you figure what percentage is being paid back in a chapter 13, it is not a simple equation. You have to look at the entire financial situation to determine whether or not creditors are going to get 10%, 100%, or somewhere in between. You also must factor in those creditors that don’t file a proof of claim because they get nothing if their unsecured. So we look at the totality of the circumstances of the case. It is only after the case has already been in process and confirmed that we can begin to determine what percentage is going to get paid back. For this reason, I am hesitant to advise a client as to what percentage is going to get paid back. I simply tell my clients that your available budgetary income per month less the expenses is what is going to be paid towards the repayment plan.
The Budget Should Be The Concern
What clients should be concerned about much more than what percentage is being paid back is how much is being paid per month out of the budget. If it turns out that one hundred dollars per month winds are paying back 10% of the debt and $300 per month winds up paying back 40% of the debt, then it seems like a huge disparity. However, the client simply should look at what they have to pay per month and see if it’s feasible within their budget. The attorney is going to do the best job possible in terms of proposing a chapter 13 plan that pays back as little as required under the bankruptcy code. We do not want the debtor to adjust their income or adjust their expenses in an effort to pay less to the creditors. We want to look at the general financial situation that the debtor has been in over the most recent 3 to 6 months and carry that situation forward unless there is a significant change forthcoming. To learn more about chapter 13 and your rights under the bankruptcy code, talk with an experienced bankruptcy attorney who is knowledgeable in chapter 13 bankruptcy practice.
