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I am paying 100% in my chapter 13? Must I pay 100% of my disposable income?

Posted on May 1, 2009 in Chapter 13

If you are paying 100% to your creditors in a chapter 13 case, you can take up to 60 months to do so – even if you aren’t paying 100% of your disposable income every month.

Lakelaw just won a case in Rockford, in the Western Division of the Northenr District of Illinois, proving this point for our client.  

For years, the experienced and able  Chapter 13 trustee in Rockford had been taking the position that a debtor had to pay 100% of disposable income to her every month, even if it would result in a chapter 13 plan being paid in full in less than 60 months.  It was her belief that debtors were acting in bad faith if they wanted to be fair to their families as well as to their creditors. From this trustee’s point of view, it was more important for the creditors to be paid quickly than it was that the creditors were being paid in full over the term of the plan.

However, the Bankruptcy Code provides that the debtor in a chapter 13 must pay all of his or her disposable income to a chapter 13 trustee only if the plan pays less than 100% to creditors.  If a plan pays creditors in full, the requirement that debtor pay 100% of disposable income does not apply.

Judge Barbosa had the courage and wisdom to reconsider his prior views on this issue in light of the plain language of the statute as well as recent precedent in other jurisdictions.  Debtors throughout Northern Illinois, from Woodstock to Galena and all points in between will benefit from this new precedent and the clarity of thought Judge Barbosa demonstrated from the bench.

Lakelaw went to the mat for our clients before Judge Barbosa and against the Chapter 13 trustee.  And we’ll go to the mat for you too.  In the meantime, we hope that the Rockford trustee will post Judge Barbosa’s decision on her recent decisions page so that everyone in the Northern District of Illinois, Western Division, will become aware of Judge Barbosa’s new ruling.


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