Do You Pay 100 Percent of Debt in Chapter 13: Payment Calculation Guide

Debt Payment Requirements

How Chapter 13 Payment Amounts Are Calculated

Your Chapter 13 plan payment depends primarily on your disposable monthly income, which is what remains after allowed expenses. The calculation uses standardized expense categories from the IRS, not necessarily your actual spending. This means high earners often pay more than they expect, while lower earners sometimes pay less than they feared.

The means test determines your baseline. Take your average monthly income over the six months before filing and compare it to your state median income for your household size. Below median income, you qualify for a three-year plan. Above median, you must propose a five-year plan.

From your gross income, subtract allowed expenses for housing, transportation, food, healthcare, and other categories. Some use IRS standards regardless of what you actually spend. Others use your actual expenses if they are reasonable. The remainder is your projected disposable income, money theoretically available to pay creditors.

Expert insight: "The means test calculation has dozens of nuances that significantly affect your payment. Do not try to calculate it yourself from online forms. The differences between actual and IRS-standard expenses alone can swing payments by hundreds monthly."

Priority Debts Require 100% Payment

Certain debts must be paid in full through any Chapter 13 plan. These priority debts reflect Congressional judgment that some obligations are too important to reduce. Child support arrears, alimony obligations, and most taxes fall into this category.

Recent income taxes, generally those from returns due within three years of filing, cannot be discharged and must be paid completely. Older taxes may qualify for discharge, but the rules are complex and depend on filing dates, assessment dates, and whether returns were filed timely.

Child support and alimony arrears must be paid in full, and you must stay current on ongoing support obligations throughout your plan. Falling behind on support during Chapter 13 can get your case dismissed. These obligations survive bankruptcy regardless of chapter or circumstances.

Secured Debts When Keeping Your Stuff

Secured debts are loans attached to collateral, such as mortgages to houses, car loans to vehicles, and furniture loans to couches. If you want to keep the collateral, you must address the debt through your Chapter 13 plan.

Mortgage arrears can be spread over your plan period while you maintain current payments going forward. If you are $12,000 behind on your mortgage, that amount gets divided across 36 or 60 months. Combined with your regular mortgage payment outside the plan, this lets you cure defaults and keep your home.

Car loans get paid through the plan if you are behind, or sometimes even if you are current. The 910 day rule determines whether you pay the full balance or just the car current value. Either way, you are committing to pay enough to keep the vehicle.

Unsecured Debts Where Reduction Happens

Unsecured debts, including credit cards, medical bills, personal loans, and deficiency balances, receive whatever remains after priority and secured obligations are satisfied. This is where Chapter 13 debt reduction power becomes apparent.

If your monthly disposable income is $600 over five years, that is $36,000 total. Assume $5,000 goes to attorney fees, $4,000 to trustee commissions, and $12,000 to priority taxes. That leaves $15,000 for unsecured creditors. If you owe $75,000 in unsecured debt, they receive 20%, or 20 cents on the dollar.

Some plans pay even less. Below-median income filers with significant secured and priority obligations may have nothing left for unsecured creditors. Zero-percent plans exist, where credit card companies and medical providers receive nothing and the debts discharge anyway at plan completion.

Expert insight: "Credit card companies know Chapter 13 usually pays them cents on the dollar. They have priced that risk into the interest rates they charge everyone. Do not feel guilty about paying what the law requires."

Above-Median vs Below-Median Income

Your income relative to state median dramatically affects Chapter 13 outcomes. Below-median filers enjoy significant advantages that often result in lower payments to unsecured creditors.

Below-median income filers qualify for three-year plans instead of five. Shorter plans mean less total payment even at the same monthly amount. A $400 monthly payment over three years totals $14,400, while over five years it totals $24,000. That $9,600 difference often comes directly from unsecured creditor recovery.

Below-median filers also face less scrutiny of their expenses. The means test for above-median filers uses IRS standardized expenses that may be lower than actual spending. Below-median filers can use actual reasonable expenses more freely, often resulting in lower calculated disposable income.

Frequently Asked Questions

What is the minimum percentage I must pay unsecured creditors?
There is no fixed minimum. It depends on your disposable income and what creditors would receive in Chapter 7.

Can creditors object to my proposed plan payment?
Yes. They can argue your expenses are inflated or income understated, but objections succeed only if they prove the case.

Do I pay interest on unsecured debts in Chapter 13?
No. Unsecured debts receive their percentage of the pot without additional interest accruing.

What happens to unpaid unsecured debt after plan completion?
It is discharged. You no longer owe whatever percentage was not paid through the plan.

Can my plan payment change during the five years?
Yes. Significant income or expense changes can justify modification up or down.

Is Chapter 7 better if I would pay zero to unsecured creditors anyway?
Possibly, but Chapter 13 offers benefits like keeping property and curing mortgage arrears that Chapter 7 does not.