When I talk with people about Chapter 13 bankruptcy, most ask: “How much will my monthly Chapter 13 Plan payment be?” And for obvious reasons, this is a very valid and important question. Will the plan payment be affordable? Will the plan payment be flexible?
The Components of the Chapter 13 Plan Payment
First, it’s important to know that your monthly Chapter 13 Plan payment may include several components:
- an amount to cover your auto payment,
- your mortgage arrears installment,
- your non-dischargeable regular student loan payment,
- your priority and secured tax liability.
This is not a comprehensive list and all items listed are not necessarily applicable in every case.
And then sometimes the plan payment may also include one other component:
- an amount forgeneral, unsecured debts like credit cards and hospital bills.
Your Facts and Needs Determine How Much You Must Pay In Your Chapter 13 Bankruptcy
The components that make up your Chapter 13 Plan payment depend on your facts and your needs.
As for the general, unsecured debts component of the Chapter 13 Plan payment, in order to determine if and how much you must pay of this component, I must perform three separate tests. I begin with the Means Test, also known as the “Best Efforts Test” in St. Louis, Missouri (not to be confused with the Best Interests of Creditors Test – another one of these three tests).
The purpose of the Best Efforts Test is to ensure fairness to your general, unsecured creditors – paying in what your numbers say you can afford to pay, (after deducting your household expenses and higher priority debts like your mortgage, auto loan, and priority tax debt for the above-median debtor).
The test requires us to calculate an average of your monthly income using your historical income, (aka Current Monthly Income), and then subtract certain monthly expenses to reach your Disposable Income. And it’s this Disposable Income that you must pay each month, if any, during the life of your case, for the benefit of your general, unsecured creditors.
Flaws in the Best Efforts Test – Hamilton v. Lanning – the US Supreme Court’s Solution
But is the Best Efforts Test really the benchmark for fairness?
One inherent problem with this test is that the first variable of the equation – Current Monthly Income, may not be current anymore – after all – it’s based on “historical” figures. Perhaps, during this historical period (6 calendar months before filing) you received a large one-time bonus from your employer. Well if you average that in, your Current Monthly Income is going to look much higher than it is in real life, and so will your Disposable Income.
Who wants to be required to pay a higher Chapter 13 Plan payment than there is actual money to pay? How does that work? (Well, we know that it doesn’t.)
Of course, the shoe could be on the other foot, and perhaps you now have a much higher paying job than you did during the historical period. Well, it would be unfair then to the unsecured creditors to allow you to pay less to them based on outdated numbers.
This conundrum was brought to the US Supreme Court’s attention in connection with a Kansas bankruptcy case in Hamilton v. Lanning. And the High Court ruled that the Best Efforts Test (aka 11 USC 1325(b)) is the starting point in determining the unsecured debt component to your Chapter 13 Plan payment.
Now, we’re allowed to take into consideration changes that are known or virtually certain to occur in your finances when calculating this component. So, if the Best Efforts Test requires impossible efforts, or rather underachieving ones, the Lanning decision will make it fair again.
This isn’t the end of the calculations in determining your Chapter 13 Plan payment or unsecured debt component, but it is the end of this post.
Chesterfield Consumer Bankruptcy Attorney
If you’re interested in learning more about how a Chapter 13 bankruptcy may help you, please contact me, Attorney Nancy Martin today at (636)536-5355 or online. At Jenkins and Kling, P.C., I help people with their debt problems in St. Louis, Missouri and surrounding areas.
And for more posts on the letter “B” in the Bankruptcy Alphabet, please click on the below links:
[learn_more caption=”St. Louis Bankruptcy Attorney Nancy Martin” state=”open”] Nancy Martin is a St. Louis, Missouri attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy and other debt relief alternatives, contact us online or by phone at (636) 536-5355. The office is located at 150 North Meramec Avenue, Suite 400, St. Louis, Missouri 63105.
We help people in St. Louis, St. Charles, Chesterfield, Ballwin, Creve Coeur, Maryland Heights, Ladue, Manchester, Kirkwood, Webster Groves, Wildwood, Bridgeton, Fenton, Eureka, Ellisville, Des Peres, Clarkson Valley, and Frontenac. This includes the municipalities within St. Louis County, St. Charles County, Jefferson County, Franklin County, Warren County, and Lincoln County.[/learn_more]