By Ryan C. Wood
Okay, so you are thinking about reorganizing your debts in a Chapter 13 bankruptcy case. Good. I have no doubt that you will come out of it better off both financially and personally. Just leave the stuff you that got you there behind and move on please. My partner and I have filed over 1,000 bankruptcy cases and I was formerly a staff attorney for a Chapter 13 trustee, so listen up.
1. Choose Your Bankruptcy Attorney Carefully
This is the single most important decision you will make. The other four things below are things you need to do to help your bankruptcy attorney do their job correctly and in turn help you achieve your goal of reorganizing your debts to your benefit. Choosing the right attorney is still the single most important choice. You must go to at least two consultations with different bankruptcy attorneys before retaining one. After talking to the first one then meeting with a second attorney you will get a feel for which attorney actually knows what they are doing. You cannot stop there though. Just because the attorney knows what they are doing does not mean you want to lock yourself in with them for the next three to five years. The bankruptcy attorney can know what they are doing, but what good is that if they do not return your calls or emails timely and cause you massive stress? What if they are slow to do their job even though again, they know what they are doing? Do not forget that the attorney needs to know what they are doing plus do their job in a way that does not cause you more stress than you are already under. Test the attorney before retaining them with emails and phone calls. See how long it takes them to respond and how they respond. There really is no question that cannot be answered openly and honestly.
2. Pay The Monthly Plan Payment Each Month No Matter What
The single most important thing for you as the Chapter 13 bankruptcy filer to do is pay the monthly Chapter 13 Plan payment each month on time every time. There is no excuse for not making the monthly Chapter 13 Plan payment. Your first Chapter 13 Plan payment will be due 30 days from the day the case is filed. That is the first month of the Chapter 13 Plan even though the plan has not been confirmed or approved by the Bankruptcy Court. This is how it works. So even though the Chapter 13 Plan payment may change as the case progresses that does not mean you do not make the Chapter 13 Plan payment at all. You must always know what the monthly plan payment is. I am not aware of any Chapter 13 Trustee that sends a statement each month to make sure you make the Chapter 13 Plan payment. That is your responsibility and obligation period. Some Chapter 13 Trustees send an initial statement of instructions about how to make the Chapter 13 Plan payment each month and then that is all. Today in most jurisdictions you can make the Chapter 13 Plan payment directly from your checking account and set it up on automatic payment. All you need to do is make sure there is enough money in the checking account each month when the payment hits.
If you do not make the monthly Chapter 13 Plan payment even one month the Chapter 13 Trustee or a party in interest can request your Chapter 13 case be dismissed or converted to Chapter 7. It is that serious.
3. If You Cannot Pay The Chapter 13 Plan Payment Tell Your Attorney
If you cannot follow number 2 above for whatever reason you have to tell your bankruptcy attorney as soon as you know you are going to be late or miss the Chapter 13 Plan payment. Communication is the key here. If your attorney does not know there is a problem there is nothing they can do to help you. Do not put your attorney in that position. The first sign of a problem should not be your attorney getting notice of a motion to dismiss your case for failure to make the monthly Chapter 13 Plan payment. Remember you are in this together. Neither your attorney nor you can be successful in this process without proper communication both ways. Some Chapter 13 Trustees will hold off on filing a motion to dismiss a case if they simply receive an email from your attorney telling them that the payment is going to be late. Please take the two minutes to email your attorney what is going on and when you will make the Chapter 13 Plan payment. Your bankruptcy attorney can also modify the terms of the Chapter 13 Plan to change the monthly payment, temporarily reduce the monthly payment or even suspend the monthly payment to give you further relief and figure things out if you lose a job or some other part of life prevents you from making the Chapter 13 Plan payment. Again, communication is the key to success.
4. Make Sure You Are Deducting The Proper Taxes From Your Check Each Month
This is such a huge issue these days. You must properly deduct taxes from your income each month so that at the end of the year you do not owe the Federal Government or your State Government a huge amount of taxes. This will screw up the Chapter 13 Plan and cause all kinds of problems. In some jurisdictions any tax refund you receive goes straight to the Chapter 13 Trustee for the benefit of your creditors. It is a provision of the Chapter 13 Plan. In other jurisdictions this is not the case. You do not want to over withhold taxes. The much bigger problem is when you under withhold taxes so that your net income is higher than it should be each month. Each month you are accruing unpaid taxes and at the end of the year you will have a bill you cannot pay. The IRS or your state government will most likely then file a proof of claim in your bankruptcy case that is a priority debt that is supposed to be paid in the Chapter 13 plan. Except you already have a confirmed or approved plan with a monthly payment that does not include these new unpaid taxes. Not good. So, to not screw up all the work that was already completed you must deduct the proper amount each month and receive a small refund or owe a small amount that you can just write a check for. You need to do this for the entire time you are in the Chapter 13 case. This will be anywhere from three to five years depending upon the circumstances.
5. Make Changes To Your Spending Habits
Now that you have filed Chapter 13 to reorganize your debts you have a budget you need to stick to more or less so that you can make the Chapter 13 Plan payment each month and fulfill your obligation to your creditors according to the Bankruptcy Code. That means you must make changes to how you live. There are all kinds of reasons to file Chapter 13 and reorganize your debts. There is no limit to the hardships of life. Some of the reasons are out of our control and some of them are in our control. Once you file Chapter 13 bankruptcy and have a confirmed or approved Chapter 13 Plan you must make the Chapter 13 Plan payment each month. You must toe that line on your income and expenses to get it done. If you have never made a budget before you will now. Your Schedule I lists your monthly income and Schedule J lists your monthly expenses. What is left over is what is paid each month to the Chapter 13 Trustee. What your specific Chapter 13 Plan payment is varies widely on all kinds of factors that this article does not begin to touch on, but the bottom line is what is you have to make the Chapter 13 Plan payment each month. Make the necessary changes in your life and habits to make sure you can do that. You can do it. What you have to pay your creditors in a Chapter 13 bankruptcy case should be a better deal than what you were struggling with in real life before seeking bankruptcy protection. That is not true in every case depending upon the circumstances, but it is true most of the time.
So, if you follow these five things your Chapter 13 reorganization case will go much smoother and allow you to live a happier life and healthier financial life. That is the entire point. Bankruptcy provides relief to allow you to live a better life.
