Why Must my Chapter 13 Include an Employer Payroll Deduction?

Have you made the decision to file a Chapter 13 bankruptcy?  If so, you should understand that Chapter 13 serves as a bankruptcy court approved and supervised payment plan.  The court approved and supervised part is important because the bankruptcy court will protect you from creditor actions as long as you stay current with your plan.  By contrast, non-court supervised payment plans offer no legal protection – even if you pay every month on time payment plans that are not Chapter 13 will not stop lawsuits, wage garnishments, bank levies, vehicle repossessions or foreclosures.Chapter 13 only works if you make regular payments to your Chapter 13 trustee.  The trustee collects funds and mails out checks every months to your creditors 1.  How much each creditor gets and when those payments start is set out in your Chapter 13 plan, which is submitted by your lawyer and, after some negotiation with the trustee and creditors about the terms, approved by the bankruptcy judge at your plan confirmation hearing.In the Northern District of Georgia, all Chapter 13 debtors must fund their plans through a payroll deduction.  The only exceptions are for self-employed debtors or situations where you can prove that your employer will not cooperate with a payroll deduction.Obviously, when your employer receives an order from the bankruptcy judge to withhold some of your wages and mail to a Chapter 13 trustee, your bankruptcy filing will become known to your payroll supervisor and perhaps to others in management at your employer.Neither Susan Blum or I have been involved in any cases where one of our Chapter 13 clients lost his job or had other problems at work because of a payroll deduction.  Still, we advise our clients to speak with their payroll office to let them know that a payroll deduction order is coming.By the way, it has also been our experience that your employer may need some time to include the payroll deduction into its payroll system.  You must make direct payments to your trustee during this set-up time.  You risk a dismissal of your case if you do not personally make your trustee payments immediately after your case is filed.  The courts do not offer any grace period.Usually the confirmation hearing for your plan will be scheduled about two to three months after you file.  During this probation period you have to show that you can afford to make your trustee payments as well as other payments required by your plan, like mortgage loan payments and child support.  Your plan must be fully funded by confirmation.While payroll deductions do give notice to your employer that you have filed bankruptcy, they offer a clean and easy way to make payments.  In our practice cases without payroll deductions rarely make it to discharge, whereas payroll deduction cases are more likely to succeed.In closing, let me quote my friend Russ DeMott, who is a bankruptcy lawyer in Charleston, S.C.  Russ points out that “payroll orders are good!  They help you learn to live on the budget you set up, and therefore make your Chapter 13 payments. In turn you’ll emerge from Chapter 13 having accomplished your financial goal.”If you have any questions about filing Chapter 13 in the Atlanta area, please call Susan or me at 770-393-4985 or contact us by email.

1. In the Northern District of Georgia, there are three “standing trustees” that will be assigned to your case based on which judge is randomly assigned.  Each standing trustee employs several assistant trustees who may work on your case.   Here is a link to standing trustee Nancy Whaley’s site where she explains the trustees’ duties and responsibilities. ↩

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