S is for Step Plan
image by: dreamstime
image by: dreamstime
Chapter 13 bankruptcy is difficult enough to understand. The Chapter 13 plan is the point of a Chapter 13 bankruptcy case.
Chapter 13 is a payment plan bankruptcy case, as opposed to Chapter 7 or “straight” or “liquidation” bankruptcy.
Clients always ask: How does the court figure out how much I will pay?
The answer is: it ain’t the court, you do!
You file your Chapter 13 plan, and you really need an experienced attorney to do this.
Any financial analysis starts with: the budget.
How much is coming in, minus how much is going out for living expenses, determines the plan payment.
We will leave plan length and liquidation analysis for a letter “L” post.
So, simple enough, once you take your pay stubs – oh? self-employed, you say? Or on cmmission? Well, Congress says we have to crunch those numbers, make our best guess as to FUTURE income and expenses, and go with that.
Lots of guesswork, I know, but, them’s the rules.
Unless you are paying 100% of your debts before 3 years are up, your Chapter 13 plan must go for at least 36 months.
So, what if your car payment is done after 20 months? Let’s make it simple: you are buying this car, not a lease that has to be replaced.
In the Detroit bankruptcy court, the Trustee will object to confirmation of your plan unless you increase your payment, or, step up the payment, by the amount of the car payment, in month 21.
So, your monthly car payment is $300; your monthly plan payment starts at $400, for months 21 through 36, you pay $700.
The Trustee’s view of bankruptcy law, in this situation, is right, it says here. Regardless of my opinion, the Detroit bankruptcy Judges say she is.
What about your 401(k) loan?
The 6th Circuit Court of Appeals, In Re: Seafort, issued its opinion that when a 401(k) loan is paid off during a Chapter 13 case, the payments must step up by the amount of that loan.
Seems obvious to me, but, the Debtors’ attorney argued that they should be able to take that money, and increase their 401(k) contribution.
The 6th Circuit blew the whistle on that move, and, short of the U. S. Supreme Court, which is usually too busy for bankruptcy cases, they are the FINAL word for those of us in Michigan, Ohio, Kentucky and Indiana.
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