Question on payment plan to trustee...

[HAP]

How does this work. I've seen the below post where some people were saying there trustee payments were less (some even said about $1,500) per month than the debt they were paying on credit card balances. Does the surplus money go somewhere else toward the bankruptcy or is that your money free and clear to put into savings, etc.

Sorry if this is a dumb question.

Thanks in advance!

[lrprn]

This is not a dumb question at all! Since non-secured creditors don't look closely at how much debt load you are already carrying before giving you credit, debtors often find themselves owing far more than their income can actually support. This is what leads to filing bankruptcy.

When you stop paying all the non-secured creditors before filing, you drop back into the zone where your income can support the remaining debt load you have. The surplus money freed up by not paying non-secured creditors now goes to other things you need, typically living expenses that you haven't been able to afford because that money has been going to pay your non-secured creditors instead.

When you file Ch 13, those same living expenses are included as a part of your plan. Only the disposable income that is left AFTER all your secured debts and living expenses are paid is what is paid to your trustee.

Does this make sense?

[HAP]

I believe so, thanks. I see that some people on here talk about how their budgets as set out by the Trustees are tight during a chapter 13. Are people not allowed to retain any of their extra money after paying secured debts/living expenses then the trustee? Say a person made $3,000 a month and secured debts and living expenses totalled $1,000 would the trustee then make you pay the extra $2,000 per month to them or would it be possible to pay the secured debts/LE and then the trustee $1,000 and then you can stash the rest of the $1,000 per month as savings or for unexpected expenditures? I'm hoping if we do actually file, we would qualify for Chapter 7, but I'm just trying to understand the different chapters depending on what we may actually need to do.

Thank you again. These forums and the people on here are really helpful!

[qwertysue]

The schedules that you fill out during the BK filing process will determine how you incoming funds are distributed. An attorney who is knowledgeble with the local trustee's tolerances will be a blessing when filing a 13. Your attorney will go over your expense worksheet to make sure that you have included ALL realistic expenses and that you are within the norm for your district.

When in debt, realistic expenses are often compromised in an effort to keep paying off that debt. The expense worksheet will look at maintenance on cars/housing, clothing, medical.

There may be times when a plan allows, say $600 month for groceries (the attorney informs you that is the $ generally accepted by the trustee), yet with careful shopping and menu planning you only spend $400 a month. Then yes, the excess is indeed excess. Many 13'ers keep that money tucked away for emergencies that will inevitibly come up.

[lrprn]

Are people not allowed to retain any of their extra money after paying secured debts/living expenses then the trustee? Say a person made $3,000 a month and secured debts and living expenses totalled $1,000 would the trustee then make you pay the extra $2,000 per month to them or would it be possible to pay the secured debts/LE and then the trustee $1,000 and then you can stash the rest of the $1,000 per month as savings or for unexpected expenditures?

The Ch 13 payment isn't nearly as simple as subtracting your expenses from your income and the trustee gets the rest. The monthly payment is calculated using a complex formula of cross-comparisons inside the Means Test and the Schedules that determines your disposable income. That's what your monthly Ch 13 payment is based on.

It's like the relationship between income and income taxes. You and I could make the exact same amount of income, but I end up paying more taxes than you because I don't have as many deductions.

Once your Ch 13 is filed and the plan is confirmed by the court, your payment is set through the end of your typical 5 year plan unless your income or expenses change significantly and permanently. Then your lawyer could file an amended plan that takes changes into account which then must be re-confirmed by your bk court judge.

There's a lot of variation between local courts as to what a "significant and permanent" income or expenses change is....that's why having a good lawyer for Ch 13 is so important to help navigate these differences. We 13ers here on the board have found lots of differences between what our trustees and local courts require of us. Welcome to the all-too-often gray world of Ch 13.

[HAP]

Thanks again everyone