Chapter 13 Bankruptcy: Understanding Your Plan Payment Options

When you’re facing overwhelming debt, Chapter 13 bankruptcy offers a structured path to financial stability. This powerful legal tool allows you to reorganize your debts while protecting important assets like your home and vehicles. More importantly, filing Chapter 13 immediately stops creditor actions through the automatic stay—halting foreclosures, repossessions, garnishments, and collection calls.

Filing for Chapter 13 bankruptcy is a big decision, but for many people, it provides a structured path to financial stability. Unlike Chapter 7, which eliminates most unsecured debt, Chapter 13 allows you to reorganize and repay your consumer debts during a reasonable period of time. This means you can keep your home, car, and other important assets while catching up on missed payments.  

But how does the Chapter 13 repayment plan actually work? How much will you need to pay each month? And what happens if your financial situation changes? In this guide, we’ll walk you through a realistic Chapter 13 repayment plan example, explain what factors determine your monthly payments, and help you understand what to expect throughout the bankruptcy process.  

Immediate Benefits of Chapter 13

• Automatic Stay Protection: As soon as you file, all collection efforts must stop
• Keep Your Property: Protect your home, car, and other assets
• One Monthly Payment: Consolidate debts into a manageable plan
• Reduced Debt: Possibility of paying less than the full amount on many debts
• Interest Rate Reduction: Potential to lower car loan interest rates
• Fresh Start: Discharge of eligible debts upon plan completion

Important: You can file Chapter 13 for as little as $330 down, which covers court costs and pre-petition credit counseling fees. Legal fees can typically be included in your monthly plan payments.

Understanding Chapter 13 Plans  

When you file Chapter 13 bankruptcy, you create a structured repayment plan that consolidates your debts into one manageable monthly payment. A court-appointed trustee distributes these funds to your creditors according to bankruptcy law priorities.

Plan Length

Your plan length depends on your income compared to Louisiana’s median income for your household size:

• 36 – 60 Months: If your household income is below the median
• 60 Months: If your income is above the median

How Different Debts Are Handled

Priority Debts

Priority debts generally (with limited exceptions) must be paid through your Chapter 13 plan:

• Recent Tax Debts: While most recent tax debts require full payment, some older tax debts may qualify for different treatment
• Child Support and Alimony Arrears: Past-due support payments must be paid through the plan, while current payments continue outside the plan

Important: Priority debts must typically be addressed first before funds are distributed to other creditors.

Secured Debts (Loans with Collateral)

Mortgage Payments:

• Treatment varies by court division in Louisiana
• It may be paid through the plan or directly to the lender
• Can stop foreclosure and catch up on missed payments
• Some divisions require inclusion in a plan if 1-2 payments are behind
• Plan allows 36 – 60 months to catch up on arrears (versus typical 12 months or less outside bankruptcy)

Vehicle Loans:

• Usually paid entirely through the Chapter 13 plan
• “Cram down” available for loans over 910 days old:
• Pay only the vehicle’s current value
• Interest rate typically reduced to 6.5 – 9.5%
• This can result in significant monthly savings
• Co-signed vehicles may be paid outside of the plan if the co-signer continues payments

Other Secured Debts:

• Financed furniture or appliances
• Tax liens must be paid in full
• Can either continue payments or surrender property

Unsecured Debts

These debts often receive reduced payment and may be discharged upon plan completion:

• Credit Card Debt: May be significantly reduced
• Medical Bills: Often paid at reduced amounts
• Personal Loans: Including bank loans and payday loans
• Utility Bills: Past-due amounts can be included
• Old Tax Debts: Some may qualify as unsecured
• Student Loans: While included in the plan, they are typically non-dischargeable
• Repossession Deficiencies: Remaining balance after vehicle sale

How Much Will You Pay?

Your payment to unsecured creditors depends on the following:

1. Disposable Income Test:

• Below median income: Based on actual income minus expenses
• Above median income: Based on means test calculations

2. Best Interest of Creditors Test:

• Must pay at least what creditors would receive in Chapter 7
• Based on the value of non-exempt assets

Important to Understand: Outside bankruptcy, paying down debt becomes increasingly difficult as interest and late fees accumulate. In Chapter 13, your debt balances are frozen at filing, stopping additional interest and fees on most debts.

A Note About Asset Protection

Chapter 13 allows you to protect your property while catching up on payments. However, you must have sufficient income to fund a feasible plan that covers:

• Required payments to priority creditors
• Payments needed to keep secured property you want to retain
• Any minimum amount required for unsecured creditors

Now, let’s look at an example of how a Chapter 13 repayment plan might work.  

Real-World Chapter 13 Examples

Example 1: Sarah’s 36-Month Plan (Below Median Income)

Situation: Single parent, current on mortgage, struggling with credit cards

• Monthly Income: $3,800 (below Louisiana median)
• House payment: $900 (paid outside plan)
• Car loan: $15,000 (over 910 days old, worth $8,000, current payment $425 at 18% interest)
• Credit cards: $25,000 (minimum payments $750/month)
• Medical bills: $10,000 (monthly payment arrangements $200/month)

Monthly Payment Comparison (36-Month Plan)

Monthly Payment Comparison

Important to Understand: Without bankruptcy protection, paying down debt becomes like walking on a treadmill and moving backward. Interest and late fees continuously accumulate, pushing your goal further away each month. In Chapter 13, your debt balances are frozen at filing, letting you walk straight toward your goal without these setbacks.

Plan Benefits:

• Vehicle crammed down to $8,000 at 7% interest (from 18%)
• Unsecured creditors receive 10% based on disposable income
• Term: 36 months
• Total debt resolved: $50,000
• Total paid through plan: $13,500

Example 2: Michael’s 60-Month Plan (Above Median Income) 

Situation: Homeowner behind on mortgage, tax debt

• Monthly Income: $6,500 (above median)
• Mortgage: $180,000 ($8,000 arrears, payment $1,400/month)
• Tax Debt: $15,000 (monthly payment plan $300)
• Car loan: $25,000 (current value $18,000, payment $525 at 15% interest)
• Credit Cards: $40,000 (minimum payments $1,200/month)

Monthly Payment Comparison (60-Month Plan)

Without bankruptcy protection, catching up on mortgage arrears typically requires much shorter repayment periods if the lender agrees. There’s also a significant risk of foreclosure while trying to catch up outside of bankruptcy.

Plan Benefits:

• The mortgage payment ($1,400) and arrears paid through the plan
• Tax debt paid in full over 60 months
• Vehicle cram down to $18,000 at 7% (from 15%)
• Unsecured creditors receive 15% based on means test
• Term: 60 months
• Total debt resolved: $88,000
• Total paid: $126,000 (includes ongoing mortgage)

Example 3: Lisa’s Emergency Filing (Stopping Foreclosure) 

Situation: Home in foreclosure, car repossessed within last 21 days

• Mortgage: $150,000 ($12,000 arrears, payment $1,200/month)
• Car Loan: $20,000 (payment $485 at 22% interest)
• Credit Cards: $30,000 (minimum payments $900/month)

Monthly Payment Comparison (60-Month Plan)

Immediate Benefits: 

• Foreclosure stopped immediately
• Car recovered through automatic stay (within 21 days of repossession)
• Car loan interest reduced to 7% from 22%
• Total debt resolved: $62,000
• Total paid: $96,000 (includes ongoing mortgage)

Understanding the True Benefits of Chapter 13

Freezing Your Debt at Filing

When you file Chapter 13, something crucial happens: your debt balances are frozen. This creates a clear, fixed target for your repayment plan, unlike trying to catch up on your own, where the target keeps moving.

Think of it this way: Two people start with the same $50,000 in debt. The person trying to pay it back without bankruptcy is like someone walking on a treadmill that’s moving backward—every step forward is countered by:

• Accumulating interest charges
• Late payment penalties
• Additional fees
• Mounting collection costs

Meanwhile, the person in Chapter 13 is walking on solid ground toward a fixed goal because:

• Debt balances are frozen at filing
• Interest stops on most debts
• Late fees and penalties stop
• Collection costs end immediately

The Moving Target Problem

Outside bankruptcy, catching up on secured debts like mortgages or car loans can be especially challenging because:

1. Lenders often require quick catch-up periods (3-12 months)
2. Interest and late fees continue growing while you try to catch up
3. The risk of foreclosure or repossession remains during catch-up attempts
4. Minimum payments on credit cards mostly go to interest, not principal

Chapter 13 solves these problems by:

1. Allowing catch-up over 36-60 months
2. Stopping additional interest and fees
3. Protecting your assets through the automatic stay
4. Creating a fixed, achievable payment plan

Ready to Explore Your Options?

At Simon Fitzgerald LLC, we’ll help you with the following:

• Determine if you qualify for Chapter 13
• Create a manageable payment plan
• Stop creditor actions immediately
• Protect your important assets

Schedule Your Free Consultation

Shreveport/Monroe: 318-868-2600

Alexandria: 318-625-7505

Lafayette/Lake Charles: 337-984-1584

Schedule Online Now

Free Chapter 13 Resources

• Download Our Chapter 13 Guide
• Check Your Chapter 13 Eligibility

*This content is for informational purposes and does not constitute legal advice. For specific guidance about your situation, please contact our office.*