A Chapter 13 is most often used to save a home from foreclosure by repaying arrearages over three to five years. It also used to repay credit card or other unsecure debts by debtors who make too much money to file a Chapter 7.
A Chapter 13 requires the debtor to propose a budget for approval by the Chapter 13 Trustee. As your attorneys, we will spend a great deal of time with you discussing your budget, and preparing the budget schedules that will be filed in your Chapter 13 case. You can expect your chapter 13 trustee to look at your schedules of income and expenses and to object if the trustee believes that you are spending money unreasonably.
If the chapter 13 trustee and/or your creditors object to your monthly spending habits, they are permitted to file an objection to the confirmation of your chapter 13 plan. Usually, we can negotiate a compromise by adjusting your budget and reducing some of your monthly expenditures.
The bankruptcy court does look at the budget categories created by the IRS for use in tax repayment plans. Despite what you may have been told, you are not required to adopt the IRS budget. Instead, the IRS numbers are used as part of a “means test” analysis to determine whether you qualify for Chapter 7 or Chapter 13. Assuming that the means test analysis shows that you have to file a Chapter 13, the “reasonableness” standard applies.
As you might imagine, however, your budget cannot be exorbitant. Issues that sometimes come up include private school tuition, timeshare and expenses, boat ownership and maintenance, support of a sibling or parent, and repayments of 401(k) loans. Creating a budget in a Chapter 13 is more of an art than a science, and we cannot always predict which budget entries will generate an objection.
If budget objections are filed, you can rest assured that Hedtke Law Firm will represent your interests zealously and we will fight for approval of a budget that is livable and reasonable in your Chapter 13 case.
Please call the Hedtke Law Firm at 760 482-1737 to schedule a free consultation.