Debtors do not surrender any property they might own in a Chapter 13 bankruptcy filing. The Debtors remain in possession of the property.
To the extent the Debtors in a Chapter 13 bankruptcy own property that cannot be exempted under the Bankruptcy Code or Texas law, then their obligation is to pay to the Chapter Trustee during the commitment period an amount of money that equals the value of the non-exempt property. For illustration purposes lets say that the Debtors own a boat valued at $5,000.00 and there is no ability to exempt the boat in the Chapter 13. In this scenario the Debtors are required to pay to the Trustee the amount of $5000.00 over the course of the Chapter 13. This $5,000.00 must be paid to the unsecured creditors, so payments to the unsecured creditors in the proposed Chapter 13 Plan must equal or exceed the value of the non-exempt property.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
If the Debtor in a Chapter 13 case has been required to file federal income tax returns in the years prior to the filing of bankruptcy, then a refund amount for future years is estimated based on these refunds and circumstances of the past.
All Chapter 13 bankruptcy filings are based on a budget that is proposed by the Debtor which reflects all of the Debtor’s income and expenses. The income of the Debtor includes any estimated income tax refund, because any refund represents money that the Debtor did not actually owe to the Internal Revenue Service.
An example of a typical scenario in a Chapter 13 case might help to understand income tax refunds in a Chapter 13 case. Assume that the Debtor received a refund of approximately $3,000.00 in the year prior to the filing of bankruptcy.
Again, because that money was not owed to the Internal Revenue Service it is added to the Debtor’s income in the proposed Chapter 13 budget.
Since that income is available to fund the Debtor’s Chapter 13 Plan the estimated refund amount will be given to the Debtor.
If the refund amount from the Internal Revenue Service exceeds the estimated amount put in the budget (i.e. The amount estimated in our sample case, $3,000.00), then the Debtor is required to turn the excess refund amount over to the Chapter 13 Trustee.
So, if the Debtor receives a refund of $4,000.00, then $1,000 must be turned over to the Chapter 13 Trustee. This $1,000.00 will go to pay unsecured creditors in the Debtor’s case.
Income tax refunds are of course monitored by the Chapter 13 Trustee through a review of the annual income tax returns of the Debtor during the pendency of the case.
Debtors are required to furnish a copy of their return to the Chapter 13 Trustee within ten (10) days of filing the same with the Internal Revenue Service.
One important thing for a Debtor to keep in mind when calculating refund amounts is that the Trustee will not allow the Debtor to deduct amounts paid for a rapid refund.
So, if the Debtor is paying $200.00 to the tax preparer for a rapid refund and is required to turn over $1,000.00 to the Trustee, the $1,000.00 cannot be reduced by the rapid refund amount.
The Trustee will however allow for the deduction of the normal fee paid for the preparation of the income tax return.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
All Chapter 13 Plan payments are due thirty (30) days after the bankruptcy is filed.
If you are employed, then a Motion will be filed with the Bankruptcy Court asking for an Order to be served on your employer requiring that the bankruptcy plan payments be withheld from your wages.
This process takes some time to complete, so I always recommend to the client that if they receive any paychecks subsequent to the filing of their bankruptcy case where wages have not been withheld, that they make the payment directly to the Trustee.
All plan payments in the Eastern District of Texas have to go the following address:
Chapter 13 Trustee
PO Box 734
Tyler, TX 75710
The amount that is withheld from each paycheck depends on the pay cycle of the Debtor employee.
For example, if you are paid on a bi-weekly basis and your plan payments are $500.00/month, then $230.77 should be withheld from each paycheck.
The reason it is not $250.00 is that there are 26 pay periods in the year for a person who is paid bi-weekly. The withholding would be $250.00/pay period if you are paid semi-monthly.
Chapter 13 plan payments are withheld from wages in the same manner that child support is withheld, so to reiterate, the amount withheld from each paycheck is determined by how often you are paid.
In our example, if $230.77 is not withheld from the first paycheck you receive after the filing of your bankruptcy case, then you need to remit that amount directly to the Chapter 13 Trustee.
All payments made to the Chapter 13 Trustee have to be by Cashier’s Check or Money Order. You should retain a copy of the payment for proof and always note your case number on the check or money order.
Presently there are four ways that plan payments can be made to the Chapter 13 Trustee in Tyler. For a memo regarding these methods directly from the Trustee’s website go here. If you want to set up a bank account for payments to be made you can find the information on how to set that up through TFS go here.
Please do not send plan payments to our office. They must be sent directly to the Chapter 13 Trustee.
If your plan payments become delinquent, then you are not in compliance with the terms of your plan of reorganization and the Chapter 13 Trustee will not agree to confirmation of your plan, or in a confirmed case, will move to dismiss your bankruptcy.
A Debtor cannot acquire new debt while in an active Chapter 13 case without receiving approval of the Chapter 13 Trustee and/or the Bankruptcy Court.
Sometimes circumstances dictate that you must acquire new debt during a pending Chapter 13 case.
If you find yourself in such a situation, then please contact us so we can discuss your individual circumstances.
The withdrawal of money from a 401K plan by the Debtor is not considered the acquiring of new debt, because technically the Debtor is simply borrowing their own money.
More information on incurring debt while you are in a Chapter 13 bankruptcy can be found on the Trustee’s website here.
By Mike Wallace, Bankruptcy Attorney, serving clients in all of East Texas, including Lufkin, Nacogdoches, Palestine, Jacksonville, Tyler and other surrounding communities
I am asked the question so often: “How does a Chapter 13 bankruptcy work?”, I thought I would attempt to give the basics of a Chapter 13 case.
First, Chapter 13 cases are typically for those persons who have secured debt that needs to be reorganized (e.g. Vehicle payments that are behind, mortgage payments that are behind or taxes owed to the Internal Revenue Service). Individuals with student loan debt, which is always unsecured, can also benefit tremendously in some circumstances from a Chapter 13 bankruptcy.
There are other instances that are suitable for a reorganization of debt, but this is an attempt to simplify.
A Debtor in Chapter 13 must make payments to the Chapter 13 Trustee for a period no less than 36 months and no longer than 60 months. The length of the plan is referred to as the commitment period. The amount of the payment is determined based on a very specific budget that is prepared.
First, a net income is determined by taking the gross pay of a Debtor and deducting all of the normal deductions that are deducted from the Debtor’s pay by the employer.
Then all of the expenses for the Debtor on a monthly basis are deducted from the net income.
The monthly expenses that are generally deducted from the net pay would be as follows: mortgage or rent; utilities; auto insurance; home insurance and taxes (assuming the same are not escrow in your mortgage payment); food expense; health, life and medical insurance that is not already deducted from wages; cable or satellite television; phone expenses (land and/or cell); clothing; out-of-pocket medical and dental expenses, including prescriptions; transportation costs (includes gas, vehicle registration, service and maintenance costs); childcare; charitable contributions and trash pickup.
These expenses are for the purpose of an illustration and you might have some additional expenses that are deductible from your net income.
One thing that has to be taken into consideration when calculating net income is any income tax refund that you might receive.
An income tax refund should be thought of as an over payment of your wages to the internal revenue service. If you are receiving a refund, then this refund must be included back into your net income.
For example, let’s say that you are to receive a tax refund in the amount of $2,400.00 for a given tax year.
This refund will add $200.00 to your monthly net income ($2,400.00/12 months=$200 per month).
Once the monthly net income has been calculated and the monthly expenses are deducted therefrom, the amount that is left over for the sake of this illustration is referred to as disposable income.
As a side note, a Debtor in a Chapter 13 case that is drawing Social Security payments, can include the amount received in their net income in order to make a Chapter 13 plan of reorganization feasible (more on that subject in a moment), but if the income is not needed it does not have to be included.
The disposable income is the amount that is paid to the Chapter 13 Trustee on a monthly basis. For the sake of illustration, let’s say that you are behind on mortgage payments in the amount of $5,000.00 and you owe $10,000.00 on an automobile that needs to be paid off in your plan of reorganization.
That is $15,000.00 that has to be paid to the Trustee during the commitment period.
To simplify this illustration I have not included attorney’s fees or any interest that might have to be paid. To make a plan of reorganization feasible to pay the $15,000.00 during the commitment period, the Debtor must have enough disposable income.
Again, for the sake of illustration let’s say that the commitment period is the maximum sixty (60) months. This means that the Debtor must have $250.00 of disposable income being paid to the Trustee.
If the Debtor only has disposable income of $200.00/month, then a feasible plan cannot be proposed.
On the other hand, if the Debtor in this illustration has disposable income of $400.00/month, then there is up to $150.00/month that is available to pay any unsecured debt (e.g. credit cards, medical bills, payday loans and signature loans).
Currently, in the Eastern District of Texas the Chapter 13 Trustee allows a Debtor to keep up to $100.00 of disposable income that does not have to be dedicated to the Chapter 13 plan of reorganization.
If the Debtor in the above illustration is not required to be in a Chapter 13 for 60 months and they have $400.00 available in disposable income, then the commitment period could be shortened.
The gross income of a Debtor determines whether they are required to be in a sixty (60) month commitment period, or can be in for the shortest period available of thirty-six (36) months.
All of the above information is for illustration purposes to allow a better understanding of Chapter 13 bankruptcies. Every situation is different and there are special rules that come into play in any given Chapter 13 case.
For example, manufactured homes that are not part of a Debtor’s real property can receive special treatment in a Chapter 13, as well as automobiles that were purchased more than 910 days ago.
If you have additional questions about Chapter 13 bankruptcy or any other financial situation that you might find yourself in, then give me a call at (800) 867-1583 and we can discuss your situation at no obligation to you.
As always, any opinions expressed on this website are just that, opinions. So if you have a question regarding bankruptcy or debt relief, then please give me a call to discuss your individual situation. Bankruptcy, as many other areas of the law, can be very case or fact specific. I pride myself on giving you the answers to your questions that are based on your individual circumstances.
