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The premise upon which filing Chapter 13 bankruptcy is based revolves
around the repayment plan. Debtors must contribute a greater value into
the plan as compared to the potential value from seizure and liquidation
of assets could be available if filing Chapter 7. The plan payment then
is the single most important factor when Filing Chapter 13 Bankruptcy
Plans, because the amount of the payment determines ultimate value.
The formula used to calculate plan payments was recently simplified
according to new rules implemented by the Abuse Prevention Act of 2005.
Chapter 13 Bankruptcy Formula Calculation
When filing Chapter 13 bankruptcy under old laws, reasonableness was
the guide used by individual judges for approving plan payments, based
on case by case analysis for each individual. However, reasonableness is
no longer required, and judges must use a new mandatory payment
calculation formula in all cases. The payment required begins with
actual income, deducts a standard living allowance, and deducts actual
housing cost (mortgage payment of contractual rent). The remainder is
considered disposable income under the new law, and must be paid to the
trustee each month. Because of the level of standardized living expenses
chosen by legislators, Voluntarily Filing Chapter 13 Bankruptcy
is generally a second choice except in unique situations involving
secured debts.
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