November 20, 2017

Pay Attention to Your Chapter 13 Payroll Deduction

In the Northern District of Georgia, every Chapter 13 case must be filed as a “payroll deduction order” case.  In other words, you must fund your Chapter 13 with a payroll deduction.   In my experience the trustees will allow direct payment of Chapter 13 plan payments only when a debtor is self employed or if the debtor can convince the trustee that the debtor’s job would be in jeopardy if the employer received a payroll deduction order.

Not surprisingly payroll deduction cases work better – if the funds to pay your Chapter 13 come directly out of your paycheck, then there is one less variable to go wrong in your Chapter 13.

However….I have seen far too many cases in which a debtor got behind on his obligation to the trustee even when there was a payroll deduction.  Why?  Because the employer was withholding the wrong amount.

Payroll deduction orders are filed electronically.  When I file a case, there is a data entry screen for payroll deduction orders.  I fill in the appropriate data and the clerk of court sends out the deduction order.

In many Chapter 13 cases, however, the Chapter 13 plan I originally file on behalf of my client will need to be amended.  Many times, this amendment involves increasing the plan payment.  When that happens, I will file a second, or a third payroll deduction order through the electronic court filing system.  Each time the clerk of court mails out the new order.

Sometimes, the employer gets a second or third order from the clerk and does not recognize that the amount has changed.  Some employers ignore the second or third order altogether.  I have also seen situations in which an employer withholds money and sends it in for months at a time, then arbitrarily stops honoring the order, or arbitrarily starts withholding and sending in a random amount.

If you are a Chapter 13 debtor, you need to know exactly how much you are paying to the trustee as a plan payment and you need to know exactly how much should be coming out of your check.   Two years from now, you will have to cure the problem if your employer has been withholding $500 per month instead of $800 per month.  As far as the trustee is concerned, the payroll deduction exists as a convenience for you and for the Chapter 13 system.  At the end of the day, you bear the full responsibility for paying the correct amount to your Chapter 13 trustee.

If you believe that the wrong amount is being withheld, you need to call your lawyer.  If you change jobs or if the payroll deduction suddenly stops, you need to call your lawyer.

Just last week, one of my clients had his case dismissed after 4 1/2 years.  The case was fully funded for four years, and as of January 1 of this year the employer simply stopped the withholding.  In early May the trustee filed a motion to dismiss because of the funding problem.  Because there are only 6 months remaining, the cure for the arrearage would require my client to pay an extra $350 per month, which he does not have.  After all this time, this case was dismissed.  Had my client called me in mid-January, we probably could have solved his problem.  Clearly he knew that the payroll deduction had stopped but he did not take any action.

I urge all of my clients to be proactive when it comes to the funding of their Chapter 13 plans.   Chapter 13 is a long and intrusive process – don’t lose your discharge because of an avoidable funding problem.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

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