A chapter 13 bankruptcy is a reorganization bankruptcy, lasting usually between 3 and 5 years. Each month of the bankruptcy, a payment must be made by the debtor for the benefit of the debtor’s creditors. This post discusses the logistics of these monthly chapter 13 bankruptcy payments.
To make these payments, the chapter 13 trustee will require, in most cases, a wage order, or a “voluntary garnishment” served on the debtor’s place of employment. The debtor’s employer, then, makes the payment each much to the bankruptcy, and this payment is a wage deduction for the debtor. With the wage order in place, the chapter 13 often enters a “cruise control” phase, whereby the payments are automatic to the chapter 13 bankruptcy. Statistically, chapter 13 bankruptcies that contain a wage order are more successful than chapter 13 bankruptcies that do not contain a wage order and where the debtor directly makes the payment each month. Due, in large part, to the higher success rates of a chapter 13 bankruptcy with a wage order in place, the chapter 13 trustee advocates for the wage order strongly.
Once the wage order is in place, a debtor’s employer will make the chapter 13 payment and deduct this amount from the debtor’s payroll. If the debtor is paid twice a month, then the chapter 13 monthly payment is usually paid half each pay period.
There are certain situations that may warrant not having a wage order. The most common situation is if a debtor owns his or her business, and therefore must make the payments without a wage deduction. In this instance, the chapter 13 trustee allows the debtor to make payments directly. Another example of when a waiver of a wage order may be obtained is when a debtor has just started a new job, and does not want the wage order to potentially negatively effect his or her employment. If a debtor has been in a job for quite some time, this argument is not very strong, however. If a wage order is waived by the trustee or by the court, then the debtor will need to send payments directly to the chapter 13 trustee; the chapter 13 trustee, however, will only accept money orders or cashier’s checks in this situation, and not personal checks or automatic bill pay through a bank.
What if you do not want a wage order in your chapter 13 bankruptcy and the chapter 13 trustee insists that we have one? Well, we can appear before a judge and if our reasons are compelling, we can potentially obtain a waiver of the wage order with the provision that should a payment be missed, the wage order will be implemented immediately.
If you have questions about chapter 13 bankruptcy and wage orders, please feel free to call me today to set up your free in-office bankruptcy consultation.