- How the Monthly Chapter 13 Plan Payment is Generally Made
- Direct Payments to the Chapter 13 Trustee: Payment by Check
- Payments to the Chapter 13 Trustee: TFS or ePAY
- What happens if I miss my Chapter 13 bankruptcy plan payments?
- How can I make up missed plan payments in my Chapter 13 bankruptcy case?
- Chapter 13 Bankruptcy Trustee Payments: The Bottom Line
A Chapter 13 bankruptcy proceeding differs from a Chapter 7 bankruptcy in that, instead of discharging your (dischargeble) debt entirely, the process requires that you pay something back to your creditors, depending upon your monthly average income after necessary expenses, as well as a variety of other factors.
This post will not explain how Chapter 13 bankruptcies in Detroit, Michigan work in full detail. What is important to note is the “pay something back” portion of the above description. In Chapter 13, you make payments both monthly as a matter of course and on other occasions throughout the process.
As to the monthly payments, each month, starting from the first month after filing your case, you make a set payment toward your debt.
You do not pay your creditors directly (they are stayed from attempting to collect their debts from you by the Federal “automatic stay” injunction that initiates when you file your case).
The person you pay is called the Chapter 13 Trustee.
The Chapter 13 Trustee is an individual chartered by the US Trustee’s Office (a division of the US Department of Justice) to administer your Chapter 13 case.
The Trustee’s job is to collect your monthly required Chapter 13 Plan Payment and disburse it to your creditors in a priority ordered specified by the US Bankruptcy Code.
How much you pay every month is the difference between your net monthly average take-home pay and your necessary household expenses (food, transportation, clothing, medical, etc.). What that amount of money, once sent to the Trustee and then disbursed by him or her out to your various creditors, manages to repay to your creditors is all that they will receive on the debt that you owe them.
At the end of your Chapter 13 Plan proceeding, unless a debt is non-dischargeable (such as a student loan), the balance owed after all of the Trustee’s disbursements are made is then discharged in full.
Additionally, depending on where in the Eastern District of Michigan you file your Chapter 13 bankruptcy matter and which Chapter 13 Trustee you have, you may also be required to turn over annual tax refunds or annual employment bonus payments or other funds as needed.
How the Monthly Chapter 13 Plan Payment is Generally Made
A Local Court Rule of the Eastern District of Michigan U.S. Bankruptcy Court requires that the monthly Chapter 13 Plan payment be paid to the Chapter 13 Trustee via a “wage deduction order” if the person filing the bankruptcy receives a regular paycheck sufficient to accommodate it.
The wage deduction order is like an order of garnishment: it is issued by the Bankruptcy Court and served upon your employer requiring them to take the monthly Plan payment funds out of your paycheck. Because Chapter 13 is a voluntary process, the wage deduction is referred to as a payment order or plan payment rather than a garnishment which is involuntary.
Depending on whether you are paid monthly, bi-weekly, semi-monthly, or weekly, the equivalent amount of your monthly Plan payment will be deducted from each check.
For example, if you are paid bi-weekly (every two weeks), you have 26 pay periods per year. If your monthly required Chapter 13 Plan payment is $200.00, then $92.31 ($200 x 12 months / 26 pay periods, rounded up) will be withheld by your employer each pay period for forwarding to the Chapter 13 Trustee.
If you earn your income from Social Security, unemployment benefit, worker’s comp, are self-employed, or your spouse earns the household’s income—or for any other reason you might not earn a regular paycheck—then the wage deduction order will not be effective.
In that instance, that same Local Court Rule requires your Plan payment to paid via an ACH (Automated Clearing House) deduction directly from a bank account of your choosing once per month, on a certain designated day.
The Eastern District of Michigan Bankruptcy Court, does not give debtors in Chapter 13 bankruptcy proceedings the option to directly make a Chapter 13 Plan payment—or the opportunity to forget to do it.
That said, there may be occasions on which you do need to directly send a Plan payment to the Chapter 13 Trustee. This is nearly always necessary in the first month of your Plan as the wage order or ACH order will not yet be in place. Later, it could be due to a work outage or some interruption of your normal receipt of wages. (Just because you take a month off of work does not mean you can skip a Plan payment!)
In such a case, there are currently a few different ways to do this.
Direct Payments to the Chapter 13 Trustee: Payment by Check
Whether you are making up a missed payment, turning over an annual tax refund or annual income bonus, all of the Chapter 13 Trustees will accept the payment the old-fashioned way: a check in the mail.
However, although the Chapter 13 Trustees will accept a personal check, sending one is not advised as you can expect it to take a month or more to clear through and register in the Trustees’ payment systems.
This lag in processing time can be crucial when your bankruptcy lawyer is arguing, for example, that your case should not be dismissed for lack of payment. You may have mailed a check—but it won’t look like you have to the Trustees for quite a long period of time.
It is better to send a cashier’s check or money order.
You will need to write your case-number and what the payment is for (“April 2019 plan payment,” “2019 tax refund,” etc.) on the memo-line of the check or money order.
The checks should be made payable to “Chapter 13 Trustee,” or as designated on the table below.
Depending on which Chapter 13 Trustee you have, you will send it to one payment address or another and NOT to the Trustees’ office addresses.
The payment addresses for the Eastern District of Michigan Chapter 13 Trustees are as follows:
|David Ruskin||Chapter 13 Trustee
1593 Reliable Parkway
Chicago, IL 60686-0015
|Krispen Carroll||Chapter 13 Trustee
P.O. Box 2018
|Tammy Terry||Chapter 13 Trustee – TLT
P.O. Box 2039
Memphis, TN 38101-2039
|Carl Bekofske||Chapter 13 Trustee – Flint
P.O. Box 2175
Memphis, TN 38101-2175
|Thomas McDonald||Thomas W. McDonald, Jr., Trustee
P.O. Box 613286
Memphis, TN 38101-3286
Payments to the Chapter 13 Trustee: TFS or ePAY
Additionally, all three of the Detroit Chapter 13 Trustees (Ruskin, Carroll, and Terry) are now permitting electronic payment via the TFS system.
Flint Trustee Carl Bekofske utilizes the ePay system, alternatively.
These are options for, potentially, a much quicker transfer of funds that you should discuss with your Michigan bankruptcy attorney when and if you need to make a direct payment.
If you have a hearing approaching on a Trustee’s Motion to Dismiss your Chapter 13 proceeding for failure to turn over a tax refund, etc., time may be of the essence.
What happens if I miss my Chapter 13 bankruptcy plan payments?
If you miss your Chapter 13 bankruptcy plan payments, it can have serious consequences on your bankruptcy case. Here are some possible outcomes:
- Motion to Dismiss: If you miss one or more payments, the Chapter 13 Trustee or one or more of your creditors may file a motion to dismiss your bankruptcy case. If granted by your bankruptcy judge, it means that the court will terminate your bankruptcy case. You will no longer be under the protections of the automatic stay the bankruptcy filing provides which means that creditors can once again start their collection remedies against you and you will be responsible for all of your debts again.
- Plan Modification: If you miss a payment, you should contact your bankruptcy attorney as you may wish to file a motion to modify your Chapter 13 bankruptcy plan. This may result in an increase in your monthly payment or an extension of your payment plan, depending on the circumstances of your case.
- Excuse Payments: In some cases, depending on your individual circumstances, your attorney may be able to file a motion asking the court to excuse your plan payments for a particular time period. For example, if you lost your job during the pendency of your Chapter 13 bankruptcy case but have now found new employment, a motion could be filed to excuse those payments missed during the time in which you had no income due to the unemployment.
- Creditor Collections: If your Chapter 13 bankruptcy case is dismissed, your creditors may resume their collection efforts against you. This could include garnishing your wages, seizing your property, or filing a lawsuit against you.
It’s important to remember that the success of your Chapter 13 bankruptcy case depends on your ability to make timely payments. If you are struggling to make your payments, you should contact your bankruptcy attorney as soon as possible to discuss your options.
How can I make up missed plan payments in my Chapter 13 bankruptcy case?
If you have missed plan payments in your Chapter 13 bankruptcy case, it’s important to take action as soon as possible to avoid any potential consequences. Here are some options for making up missed plan payments:
- Contact your bankruptcy attorney or bankruptcy trustee if you do not have an attorney: If you have missed a payment, you should contact your bankruptcy attorney as soon as possible. Your trustee may be willing to work with you to set up a repayment plan or modify your plan to make it more affordable.
- Request a hardship discharge: If you are experiencing financial hardship and are unable to continue making your plan payments, you may be able to request a hardship discharge. This would allow you to receive a discharge of your debts even if you have not completed your plan payments. However, this is a difficult standard to meet, and you should speak with your bankruptcy attorney to discuss whether this is a viable option for you. This option is rarely used as the burden to prove hardship can be a difficult hurdle to pass.
- Increase your income: If you are able to increase your income, you may be able to catch up on your missed plan payments more quickly. This could include taking on a part-time job, selling items you no longer need, or finding other ways to earn additional income.
- Conversion to Chapter 7 bankruptcy: In some cases, the best option to save a failing Chapter 13 is to convert the case to a Chapter 7 bankruptcy. Do this only after discussing the pros and cons with an experienced bankruptcy attorney.
It’s important to remember that missing plan payments can have serious consequences on your bankruptcy case. If you are struggling to make your payments, you should contact your bankruptcy attorney or trustee as soon as possible to discuss your options.
Chapter 13 Bankruptcy Trustee Payments: The Bottom Line
The bottom line with regard to Chapter 13 Trustee payments is that they are mandatory unless your attorney obtains for you a court order relieving you of the necessity to make a particular payment. Failure to turn over tax refunds, annual bonuses when required, and, certainly, regular monthly Plan payments will eventually result in your Chapter 13 case being dismissed.
It is crucial that you retain an attorney who will assist you in familiarizing yourself with your Chapter 13 plan obligations and in the means by which you are able to fulfill them.
Contact The Law Offices of Walter Metzen & Associates now to schedule a no-cost, no-obligation initial consultation.