Demystifying Chapter 13 Plan

How much of your debts do you have to pay back in a Chapter 13 Plan? The answer depends in two factors:

  1. Type of debt
  2. Amount of available income.

Debt is classified as either secured or unsecured. Secured debt includes home mortgages, home equity lines and car loans. If you want to retain you home or your car, you have to pay back 100% back of your secured debt. The Chapter 13 Bankruptcy Plan must include all arrears on secured debt and a percentage of unsecured debt. If you are current on your mortgage, you do not have to pay the principal in full. Only the arrears are included into the Plan.

Also, included in the Plan are the administrative expenses, such as Trustee commission and unpaid legal fees.

To determine the amount of unsecured debt that must be paid in the Plan, you must work backwards to calculate your available income. For example, your net monthly income is $5,000 and your monthly expenses are $4,600, your available monthly contribution to the plan would be $400 per month. If you are required to do a 60 months plan, your total contribution will be $24,000 to the Plan.

If your administrative and secured obligations are $14,000, your unsecured obligation under the plan is $10,000. If your total unsecured debt is $100,000,  your total obligation to unsecured creditor would be 10% of your debt.

Chapter 13 Bankruptcy is a viable and attractive option to many individuals strapped with debt.

For more information email me at or call me at 212-693-3737 for Free Consultation


Frequently, clients want to know if they can keep their car when they file a bankruptcy. Under chapter 13, generally a debtor can hold on to all their assets. Retaining assets is only an issue under Chapter 7 Bankruptcy.

As stated previously, the law provides a list of “exemptions” that allows a debtor to hold on to various assets when he files. In January, 2011, the law changed to increase the vehicle exemption from $2500 to $4,000. This means that if your car is worth $4,000 or less, your car is protected from creditors. If your car is worth $20,000, but you have a note for $16,000 on the car, you can keep your car because your equity is only $4,000.

Now, if you owe more than the car is worth, there is another attractive option. When you file Chapter 7 Bankruptcy, you may apply for the refinance of your car under the 722 program. If you have enough income to cover the loan payments, you can get a loan modification for the book value of the car and the bank will reduce the total amount you owe and dramatically reduce your monthly car payments.

For more information email me at or call me at 212-693-3737 for Free Consultation