In Chapter 13 a portion of the debt is paid over a 3 or 5 year plan period. The length of the plan depends on whether household income is below or above the median income for the household size. Below-median debtors only have to repay debts for three years while above-median debtors must repay for five years. A plan can be extended from three years to five if additional time is needed to cure mortgage defaults or repay nondischargeable taxes. Payment plans can’t go beyond five years.
The amount of the monthly plan payment is the balance left over each month after all expenses are paid. In other words, gross monthly income minus all payroll deductions like taxes, medical insurance, retirement accounts and child support results in net monthly income. From that net income all living expenses like costs for food, clothing, transportation, mortgage or rent are deducted. The amount left over is called “disposable income” and that’s the amount paid to the Chapter 13 trustee for disbursement to creditors. There’s no required percentage of debt that must be repaid.
If your income is high enough and your debts low enough to repay all debts, you may have a plan payment that’s less than disposable income, creating a savings. You never need to repay more than the amount of the debt plus trustee’s and attorney fees. If you’re not paying back 100% of your debt with plan payments tax refunds received during the plan period will also have to be turned over. Since unsecured debts are repaid at 0% interest, the ability to make payments to creditors for 3-5 years, with any debt remaining after the plan period discharged, filing Chapter 13 means it’s far more feasible than most debt management plans that require full repayment of the debt, plus interest.
