Chapter 13 Payment Plan

Joliet Illinois Bankruptcy Lawyers & Attorneys

David Siegel: And the trustee is the one charged with the duty of making sure that the person is putting all of their disposable income towards the repayment plan. So the trustee is going to look at the paycheck stubs. The trustee is going to make sure that income is accurate. And then they’re going to scrutinize the expenses based on IRS standards. You couldn’t put $800 for food for one person – it’s excessive.

Jesse Barrientes: But what if I were a big person?

David Siegel: You are a big person.

Jesse Barrientes: What if I were a bigger person? [Laughter]

David Siegel: Well, you have to change your budget, at least in terms of the Chapter 13 trustee’s eyes, and spend a little bit less on food. A little bit less lobster, a little bit more mac and cheese and Ramen noodles.

Jesse Barrientes: Okay. Yeah, those are pretty good. So some of the things I’ve seen in the trustee meeting is that they’ll tweak. I guess an example would be your contribution to your retirement. If it is a voluntary contribution, they’re going to require you to stop making that contribution until your plan has been concluded, right? And if it’s mandatory then you’re okay. And so those are some of the little tweaks they’re going to do. And very often in fact they make you come back, don’t they, and modify the plan in various ways.

David Siegel: Yeah. You basically have to stick with the basics for your expenses. For example if you give money to church and you tithe, they’re going to want to see proof of it. If you give money to charity, they want to see proof. If you have an excessive medical bill or ongoing medical expenses rather, or high utilities, they’re going to want to see proof that you’re not just increasing those numbers so you would pay less per month to your creditors.

Jesse Barrientes: So basically what they’re looking at for the charity contributions and your tithe and all that stuff is if I’ve always paid ten percent based on my income and it fluctuated, then – and I did that before the bankruptcy and substantially before, right? Then I’m okay. That’s not going to be a problem. If all of a sudden I decided, hey listen it would be a really good idea to give my church x amount of dollars when I’ve never done that before, then they’re going to be suspicious.

David Siegel: That’s correct. You have to justify all of your expenses. But once everything is mathematically formulated between your income and expenses, that’s the dollar figure that you as a debtor would be required to pay each month. So you really can’t save for yourself. You can’t live extravagantly. And you’re talking about a three to five year payment plan. It’s a tough thing to do.

Jesse Barrientes: I can’t have a part of my expenses some recreation?

David Siegel: Not in a Chapter 13. You’re not allowed to have any fun when you’re in a Chapter 13.

Jesse Barrientes: No fun?

David Siegel: No fun.

Jesse Barrientes: When you’re in a Chapter 13.

David Siegel: No. Because here’s the deal. You’re restricting your creditors. You’re making them wait three to five years to get paid. So why should you have any fun? Why should you be able to go on vacation? Why should you be able to eat that steak and lobster that I mentioned earlier? You have to be fair. You have to live within a budget according to the IRS guidelines and then whatever else is available, that has to go to the trustee to go towards your creditors. That’s the only fair way to do it.

Jesse Barrientes: Now, what happens if I’m tired of eating Ramen noodles and my situation changes?

David Siegel: Situation changes for the worst? You can’t make your payments?

Jesse Barrientes: Well, let’s take that. Sure, it changes for the worst. Well, I suppose I’d be eating more Ramen noodles but if it changes for the worst, right? Now what am I going to do? I can’t make that plan payment.

David Siegel: There’s a couple of things we can do. If your income changes or something like that we can try to bring a motion to reduce the amount you pay per month. If it’s just that you can’t stick on the budget, so you don’t have available money to pay the trustee, your case is going to wind up being dismissed after a couple of three months of nonpayment.

Jesse Barrientes: No, the boss came in and said hey listen either it’s one way or the other. Either I have to reduce your income along with everybody else and free to keep your job because we’re having some hard times, or I’ve got to lay off.

David Siegel: Okay.

Jesse Barrientes: So now my income is reduced. But if you go in to amend the plan payment to try to reduce it, don’t you still have to be able to sustain what you had to before, which is you have to be able to pay off your secured creditors 100 percent?

David Siegel: Yes. Secured creditors 100 percent. But a modified plan could actually lower the amount that you’re paying the unsecured creditors in this situation.

Jesse Barrientes: Now, what’s the least that you can pay your unsecured creditors?

David Siegel: The general minimum is ten percent, although there have been cases that have been confirmed that have paid out less than ten percent. But that is not anything I would look for.

Jesse Barrientes: That’s the exception rather than the rule.

David Siegel: That’s right. Plan on ten percent to 100 percent –

Jesse Barrientes: Pay back.

David Siegel: Pay back over time. Three to five years.

Jesse Barrientes: Okay, now lets – I guess it would work the same way if there was a positive benefit. Increase in income or something like that. Then what would happen is –

David Siegel: Well, technically you’re supposed to notify your Joliet Chapter 13 attorney –

Jesse Barrientes: What I want to tell you about that, right? [Laughter]

David Siegel: Typically a debtor is not going to call their attorney and say look I just got a raise of $20 per week therefore I can pay $20 more each week to my Chapter 13. They’re going to then pocket that money usually and have a little cushion.

Jesse Barrientes: A little cushion. Well, then let me ask. What happens then in this situation. I’m in Chapter 13 and you know, am I able to sell my house?

David Siegel: Yes. You are able to sell your house but you need to get court permission first. And then once you receive that court permission the house could be sold. Any net proceeds would first go to pay off your Chapter 13 balance.

Jesse Barrientes: You mean the balance of what the plan would be if it was accelerated.

David Siegel: Yes. You would not be able to keep the additional profit. It would first have to go to your Chapter 13 and basically come out of bankruptcy if possible. And then if there was an overage you would receive that. But selling the house would just maybe help you pay the Chapter 13 off quicker, escape from the Chapter 13, get out of debt, get back on your feet, start to be able to save again.

Jesse Barrientes: Sure. Would the Chapter 13 trustee really sell some of my property? What if I had this just really nice sports car?

David Siegel: No. Chapter 13 you will be able to keep all of your property.

Jesse Barrientes: Everything.

David Siegel: As long as you’re committing all of your disposable income toward that repayment plan.

Jesse Barrientes: What if I was a little bit over? For example, I’ve got this car that’s just an outrageously expensive car. Similar to yours, Dave. And I just can’t sustain the payments. Is the trustee going to make me get rid of it or liquidate it or whatever if it’s going to interfere with the plan?

David Siegel: No. You can keep your vehicle. But if it’s an extravagant or luxury vehicle, you’re going to probably have to pay a higher percentage to the unsecured creditors, possibly even with some interest if you have a luxury vehicle

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