Chapter 13 is about one thing: payments. As I tell my clients, “pay early and pay often.” If you fail to make payments, your case gets dismissed and then you’re in trouble again.
Dismissal could mean losing cars, your home, or facing renewed interest from the IRS–never good things.
1325(c) to the rescue
That section states that “the [bankruptcy] court may order any entity from whom the debtor receives income to pay all or any part of such income to the trustee.” So the payroll order tells your employer to send the bankruptcy trustee your monthly chapter 13 plan payments.
Does my employer have to send the payment once per month?
No. Your employer can take a proportionate amount from each paycheck. For example, if your monthly payment is $500 the employer can send $500 divided by 4.35 to the trustee each weekly pay period. Or if you’re paid bi-weekly, because you’re paid 26 times per year, the employer would send 1/26th of the yearly amount (in our example 1/26th of $6000, which is $230.77 each pay period. ($230.77 times 26=$6000.02 per year.) You get the idea. So long as the payments stay on track, you’re all set.
Why I like payroll orders more than even the trustee
To be blunt, I like to idiot-proof things. Simple is better. And if your employer takes the necessary payment and sends it to the trustee, you can’t spend that money on things you shouldn’t (lending it to your adult son who you’ve enabled to be financially irresponsible, buying things you shouldn’t, overspending, and so on.) If you don’t have it, you can’t spend it. You must learn to live on the rest, and we’ll know your chapter 13 plan payments will get made. And that makes both of our lives a little less stressful.
Are there exceptions to the payroll order requirement?
Yes. Here are a few:
- You work for the government. The government can’t get it’s act together with payroll orders and so our trustee here in Charleston won’t require one if you’re employed by the government. Simply put, it’s more trouble than it’s worth. No, I’m not making this up.
- You work in a small office and it would be embarrassing for your fellow employees to “know your business.” If so, the trustee will usually waive the payroll order requirement. He’s human, after all. There, I said it.
- You work in the financial services industry. Don’t get me started on this, but the financial services industry–namely banks–will possibly discriminate against you for filing bankruptcy. In most instances, this makes no sense because it’s you’re being responsible by dealing with your debt by filing a Chapter 13 bankruptcy, and you’re certainly less likely to embezzle or commit some breach of trust if you’re addressing your debt in some financially responsible manner. But the financial services industry has a tendency for not knowing a mountain from a mole hill. Like I said, don’t get me started.
The takeaway from this…
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. And I won’t have to deal with motions to dismiss your case, either.
One last thing
Please understand this: It’s YOUR (not mine, not the trustee’s, not your employer’s, not anyone else’s) responsibility to make sure the trustee gets your chapter 13 plan payments. Always make sure that, via payroll order, check, or carrier pigeon, your payments are reaching the trustee. If you don’t know for sure, FIND OUT!