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Payment Plan for Chapter 13

Posted on May 15, 2014 in Chapter 13

The first thing someone researching chapter 13 learns is that, fundamentally, it’s a payment plan. Someone seeking chapter 13 is required to pay in their “projected disposable income” for the “applicable commitment period,” at the end of which, the remaining unpaid balance of debt is discharged. Put succinctly, you pay the right amount for the right amount of time, and then you’re free.

There are a few different ways to pay. In Chicago, for all the obvious reasons, the Trustees never accept personal checks, walk-in payments, or cash. You, in chapter 13, may make your payments the bad way or the good way.

The bad way is to go to a bank or a currency exchange and buy a certified instrument, like a cashier’s check or a money order. Then you need to mail the funds to lockbox at the Trustee’s bank, in Memphis. And you need to do that, over and over, until the plan completes. Hundreds of dollars in costs – to say nothing of your time.

The good way is via payroll deduction. Just like how you may have taxes and insurance coming out of your paycheck, you have the right to request that your employer withhold the plan payments on your behalf. Your employer is tasked with the responsibility of sending them. You, in that event, have absolutely nothing to worry about. In the event that your employer fails to make the payments, it’s your attorney’s responsibility to coordinate with the employer to ensure the success of your plan.

Sometimes people get nervous. They’re afraid that their employer will resent the administrative hassle, they’re afraid that their bankruptcy filing will be considered a “negative” in their personnel file. But it just doesn’t work like that – it’s a matter of minutes for a payroll professional to send a check to your Trustee – they’re already cutting checks to the government, insurance providers, domestic support recipients, retirement plan administrators, and so forth. You, odds are, wouldn’t even be the first at your job to have a chapter 13 plan payment made through payroll deduction; you’re just the first one you know of.

And someone’s current employer is absolutely forbidden from discriminating against someone because that person filed a bankruptcy (even if that person discharges debt that they owe to their employer!).

The statistics bear out that payroll deduction works. At the outset, it shows the Court that you’re trying to make your plan work – it just looks good. For two, it’s easier for you: You can set it and forget it, and sleep easy knowing that your payments are going to get made. And finally, it just gets you into good habits. Once your plan succeeds, that’s bonus money for you. You’ll have years of budgeting under your belt, and so every paycheck will be a bonus paycheck. You’ll be able to save the money, at long last, to make your dreams come true.

Next week, we’ll tell a quick little story about a payroll control mishap – what happened when the debtors’ (former) attorney miscalculated how much to deduct, leading to their case’s being dismissed – and how Lakelaw stepped in and saved the day.

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