After 25+ years representing hardworking but financially struggling men and women in the Atlanta area, I can report to you that the #1 secret to surviving Chapter 13 is living below your means. This can mean you have to make some difficult choices.
Chapter 13 Trustees are Increasingly Demanding
When you enter Chapter 13, you need to eliminate the “wants” in your life in exchange for the “needs.” I advise my clients that if you find yourself meeting with a bankruptcy lawyer, everything needs to be on the table. And this includes your cars, home, furniture, jewelry and just about any other type of property you are financing. You will also find that your Chapter 13 trustee likely has a much more restrictive view of what constitutes a true “need:”
- if you find yourself paying more than $300 per month for a car or truck, you need to consider giving that vehicle back to the creditor and buying a car for cash or financing a vehicle and keeping the payment below $300 per month
- if you are financing vehicles, furniture or jewelry for your children or other relatives, you should be prepared to surrender that property and let your relative work out a deal on his/her own
- if your budget includes out of pocket payments for your children’s college expenses, expect push back from the trustee. The trustee’s position will generally be that your child needs to use loans and grants to finance his/her own higher education and that your child may need to seek a less expensive education. Trustees generally do not agree with including someone else’s education costs in your budget
- if your budget includes private elementary or high school for a child, you will need to produce evidence that your child has special educational needs that make public school insufficient
- do not plan on keeping time shares or other non-essentials when you file Chapter 13
Currently, my experience has been that Chapter 13 trustees in the Atlanta area are more demanding than ever when it comes to squeezing your budget to extract every penny. Personally, I think that some of these budget demands do not account for the strong likelihood that you will have an emergency or unexpected expense during the course of your Chapter 13. The response I get: file a motion to ask the judge for special consideration if and when that happens.
Your Chapter 13 Budget Must Work on Paper and in Real Life
Even if your budget works on paper, I always remind my clients that Chapter 13 cases last 5 years and 5 years can be a very long time. The means test budget figures that we use when preparing your case represent very modest monthly expenditures. If we find ourselves allocating less money than the means test numbers for food, clothing, medical costs, etc, that is a red flag.
If you bite off more than you can chew by trying to keep secured property that you really can’t afford, you will eventually find yourself facing the judge in a motion for relief from stay or a motion to dismiss. Judges hate to see bankruptcy debtors lose their homes or cars but if the numbers don’t work and your plan is not feasible, the judge will rule against you.
Chapter 13 can be a powerful tool that enables you to “reboot” your financial life and restructure payments on essentials like your house or car. But you can’t expect the judge to do all the heavy lifting – you, and you alone, have to prove that the repayment plan you file in Chapter 13 is feasible.