Chapter 13 - make sure you have an accurate budget...

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Debtors can use chapter 13 protection to get back on track with mortgages or protect other assets they would lose in a chapter 7 bankruptcy case. In some instances, a debtor cannot use chapter 7 and must file for chapter 13 protection if he or she wants bankruptcy protection. When debtors file a chapter 13 case, they are agreeing to pay their disposable to the trustee for distribution to creditors. As a result, debtors really need to understand what their living expenses truly are and how much they really have left over as disposable income.

There are several different calculations a debtor must complete to determine what the minimum payment they must make to the trustee (see Bankruptcy Chapter 13 - How much will my monthly payment be? parts 1 through 4). Once debtors have that figure, I find they make two mistakes. The first mistake or calculated risk is stretching their budget to meet the minimum payment. They list expenses less than their actual expenditures figuring they will cut their budget further then they already have at that point.

The second mistake is they just flat out underestimate how much they need to spend on their monthly bills. Debtors build their budgets from their head. They don't think to look at their check registers, bank statements or have been dealing with cash and did not keep records. 

Not being realistic about finances or misunderstanding cash flow can cause a debtor to fail in completing a chapter 13 bankruptcy case. The debtor's budget is the foundation of a solid payment plan. Debtors need to be realistic about their needs and expenditures. They also need to know and understand their needs.

If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.

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