How Is Your Trustee Payment Calculated in a Chapter 13 Bankruptcy?

Join us as we sit down with Bankruptcy Attorney, Darin Wisehart, to discuss who you pay in a Chapter 13 bankruptcy, and the details of what to expect from the process.

If you would like to speak with one of our attorneys, please call our office at (503) 227-0200, or visit our website at https://www.pacificcascadelegal.com.

Disclaimer: Nothing in this communication is intended to provide legal advice nor does it constitute a client-attorney relationship, therefore you should not interpret the contents as such.

Transcript

Intro:
Welcome to Modern Family Matters, a podcast devoted to exploring family law topics that matter most to you. Covering a wide range of legal, personal, and family law matters, with expert analysis from skilled attorneys and professional guests, we hope that our podcast provides answers, clarity, and guidance towards a better tomorrow for you and your family. Here's your host, Steve Altishin.

Steve Altishin  0:31  
I'm Steve Altishin, Director of Client Partnerships at Pacific Cascade Legal. And today we have our Bankruptcy Attorney, Darin Wisehart, to talk about how your trustee payment is calculated in a Chapter 13 bankruptcy. So, Darin, how you doing today?

Darin Wisehart  0:48  
I'm great. I'm great. How are you doing?

Steve Altishin  0:51  
I'm doing well. This is a great topic, because it's really one that people say it's one of those things that kind of are the unknown, it's sort of no one really knows about. But before we talk about that, exactly, can you give us just maybe your one or two minute explanation on generally how a Chapter 13 bankruptcy works.

Darin Wisehart  1:14  
So the chapter 13 is designed, it's titled a reorganization. And what it's what it's designed to do is allow you to keep assets that you may otherwise lose, or have to repay a much quicker path with a chapter seven, and spread your payments out over up to 60 months. And it's typically 36 to 60 months is your normal plan. It, it helps you to catch up a house, it helps you to pay off taxes that need to be paid off, it discharges certain things that you can't pay, there's there's kind of an equation and some math that goes into how your payment is created, but you make a monthly trustee payment. And the the trade off is that you pay all of your disposable income, and you repay the debts that you have to repay such as cars and, and home loan, you know, home loan arrearages those types of things. And it helps you to kind of put it all into one payment to the trustee. And then you tell you instruct the trustee how to distribute that payment out to the creditors. And that's that's your typical chapter 13. Now, the beauty of a chapter 13 too is it has a lot of creativity. So when I give that kind of the skinny of it, those are those are most cases. But there's some there's some creativity that you can put into a chapter 13 Because it's a reorganization, it's you figuring out how are we going to keep going on the ground and get our finances back in order so that we're moving in a straight line.

Steve Altishin  2:42  
That kind of leads to the $60 million question. How is the payment actually calculated?

Darin Wisehart  2:48  
And this is where your attorney will do some math. There are two different numbers in a Chapter 13, there's what do you have to pay? And there's what can you pay? And what do you have to pay numbers based on items that are secured your car loans and your home loans and those types of things. Now, whether you pay him directly as a part of the trustee payment, that's up to you kind of the attorney working the math and figuring out what you would like to do, what are your goals, but you there are certain things that you have to pay, you have to catch up your house, if you want to keep it, you have to pay an arrearage on domestic support. So if you owe child support this back support, you're going to have to catch that up over the course of the plan, you have to pay taxes that are within the last so many years. So there are certain things that you have to pay. And that's a basement, that's what you have to do regardless where your income is, I mean, your income can be really low. And you still have to pay certain numbers if you want to keep items. And sometimes we end up surrendering cars, if that number is too high, or doing certain things to reorganize your Finances so that you can afford the things that you that you use or you want to keep. The second number is probably more important, but but just as important in creating that math for your trusty payment. And that is what can you pay. And this is the number that you come up with when you balance your income versus your expenses. And you figure out what reasonably you can pay here. And a lot of times that number, you know is around the number that you have to pay. If it's higher than you've got to pay that amount additional. And that means that you're paying a little bit to the unsecured creditors. And that's the trade off. Because if if you get to the end of your case, and you didn't pay very much to your unsecured creditors because your disposable income was low, then that debt will be discharged if you get through a successful case. And that's sort of the idea if your income is up, then of course you're gonna pay more into it. And you might pay more to the unsecured creditors but the idea is whatever's remaining at the end of that 60 months on those unsecured creditors is going to zero out and discharge. 

Steve Altishin  4:53  
What if you can't pay even all of what you have to pay? Is that a limiting factor of whether you can do it in the first place?

Darin Wisehart  5:04  
It's not a limiting factor of whether you can do it, it's so you can file you can always file. And that's that filing is right that you have, as long as you know, there's a couple of reasons why you can't but we don't want to get in the weeds on on the the little offshoots, we're talking about kind of the bigger picture items you can file. Now, the question is, can you get a confirmed plan, and the confirmed plan, the idea of a chapter 13 Is that the trustee, the judge the creditors, once you get filed, you notice everybody, you let everybody know, hey, I'm filing bankruptcy, I need this protection, so that I can get my finances straight. And and then everybody kind of gets to throw their hat in the ring and say, Okay, these are the rules, you have to you have to do what the rules require. And part of that is the big hurdle is the judge at about the second or third month, the judge is going to review the case, maybe a little more, depending on how long it takes to get to that point, the judge is going to review the case, and you have to be doing the things by statute. So the statute requires that if you're going to keep a secured item, then you're going to have to pay it off one way or another. Now, there's a couple of creative pieces that we can do with that, we can do what's called a cram down. If you've had the car for a long time, over 910 days, then you can pay the value of the car rather than the value of the loan. So there's a couple of things that you can do that are creative, that will help you save money, help you get going straight. But the idea is if you're going to keep a secured item on the what do you have to pay? You're going to have to pay it off one way or another.

Steve Altishin  6:32  
Got it. So the dollar amount, eventually, there is $1 amount? And is that something that the attorney says, this is the dollar amount, this is what we can pay, so this is it? Is it the trustee? Who says well, like, Hey, I got your information, but this is it. Or is it the judge who says this is it?

Darin Wisehart  6:56  
So there's a lot to unpack in that question, right? There's a that's a layered cake. In the beginning, you will propose your plan. Okay, so you'll propose what you'd like to do. And there's in most in all districts that I know about, there's a there's a devised plan, it's, you know, 678 page, something like that. And then what you do is you'll draft to say how much you're going to pay, and then it instructs the trustee, how those payments are going to be applied to the different creditors that are on the list. Okay. Now, when you create your plan, then you submit it to the trustee and the creditors and everybody, you give everybody a chance to object to say, hey, wait a second, I don't like this because it doesn't do this part of the code. It doesn't meet this standard that it's supposed to meet. And the trustees job is to kind of push back and say, Wait a second, you're not doing what we need you to do here. And so we're going to object to your case, we're going to move to dismiss your case, because your plan doesn't do what it's supposed to do by the law by the statute. And then if you have a conflict, if you have a battle that you really cannot resolve, a creditor comes back and says, We don't like what you're doing, we're going to object, well, then you can go to the judge and say, Judge, we think we are doing what we're supposed to be doing. They don't think we are we'd like the judge to adjudicate to decide whether or not they like what we're doing or what they're doing, which one is doing the right thing. And that's that's how the process works. The judges idea is not to necessarily, they don't mind, for the most part, I mean, judges that I've seen, they're not going to get in the way of what you're doing as far as the logistics, but it's the creditors and the trustees job to kind of make sure that that moves towards what the statute is requiring. And then of course, the judge has the final say. So they know the statutes like the back of their hand, and they're not going to let you squeak through not doing what you're supposed to be doing by the law. So that's kind of how those three roles work together.

Steve Altishin  8:49  
Got it. So that sounds sort of like in other legal kinds of cases. The trustee can be almost a mediator or a settlement conference person to help settle the case. What happens if a few years later--no, a few didn't go too far, two years later-- there's been a change. Is that payment, when it's finally determined way back when, is that cast in stone? Does it change? Is it fluid?

Darin Wisehart  9:18  
It depends on how your plan is created in the beginning. And there are there are some aspects of plans and there are some some plans where the trustee is going to require this is a 100% Non modifiable plan and that's the terms that they'll typically use. That means that no matter how you go, no matter which path you take, you're asking for something here and the trustee is willing to to allow the case to move forward as long as you say you're going to pay 100% of the claims all the way through. Now if it's not that, typically, the number can be moved around a little bit as your case goes 60 months, you know the typical chapter chapter 1360 months which is five years If that's a long time, and there are times where clients come back to me and say, Hey, I lost my job, or during COVID, for sure, we had a lot of these type of events that allowed us to say, well, we need to revisit your payment, at least in the short term, while you get back on your feet. Now, I always tell clients, there's a negative to that, because we have to work on it, we have to draft a new plan and new schedules to say what the new income is, and the new expenses and all you know what it what does it look like on the ground. And then we have to present that to the creditors and the trustee, again, to have objections and give them a chance to say, you know, say their piece. And so there's some negative and of course, as you're doing that, you're paying your attorney a little bit of money to work on your behalf. So there's, you know, there's some thought process that needs to go into that, usually, though, it is modifiable. And that's where I tell clients, you know, if you need to modify it, we can do that, for the most part, depending on what your plan is, but for the most cases can modify, you just want to make sure that you're not doing that just because maybe next month, you're going to make a little bit less money, because it's it's a process, it's not something that you just say, Oh, I'm going to pay $100 Less this month, and then, you know, next month, I'll pay 200, I'll catch it up. If you're going to do that you speak with your attorney, of course, always. But you may have other ways to be creative about that, you know, particular small term or short term issue. 

Steve Altishin  11:26  
On the flip side, you're going along, you're doing your plan, you're paying on time, you're meeting every requirement, can they trust, you come back at some point and say, you know, I've kind of recalculated what you're making now and what you're getting now and I'm going to raise the amount you have to pay?

Darin Wisehart  11:45  
There's no reason why they shouldn't.The trustees job is to make sure you're paying in what you should legitimately, right. So if your income and they see your taxes every year, they have to they're required. I mean, well, I don't know, necessarily, you know, they'll they'll see your taxes every year, so they get a chance to read out that number. And if Yeah, if your income is up more than 10%, then you're going to have to do something with you know, paying a little bit more money into the plan. And most plans the draft plan that we see all the time in our in our neck of the woods, the draft plan, in this specific plan, it says in black and white, if your income goes up more than 10%, you are required to notify the trustee. And you're required to pay that extra income in to make sure that you're paying in what is right, because that's your trade off, right your disposable income. And if you're making a lot more money, then you have more disposable income, you should be paying that in so that when you get to the end, you don't have an issue in some people this is this is something that happens over the course of a case that people will not submit their taxes to the trustee or to their attorney. And you wonder, okay, well, I need to get those, and then you get them. And they make twice as much now than they did before. And those are the types of issues that I tell every client, you know, I understand what's happening, because 6060 months is a long time. And of course, you don't want to get less income, if you get a chance to get a raise or promotion at work, you take it but you want to make sure it fits in to how the bankruptcies going, and it's a much better idea to to attack those in the beginning of them, rather than having three years of taxes come in and realize that you've got a lot more income that you're supposed to pay in. So it is something that yes, that it can modify, it can modify in your benefit, it can modify against you, you know, but the idea the trade off is, it's pretty logical it is if you have disposable income for this span of time, you should pay it into the unsecured creditors. And if you if you have money leftover on the unsecured creditors, then whatever you didn't pay whatever you weren't able to pay is discharged. And that's he trade off.

Steve Altishin  13:49  
We're almost out of time. But I do want to just hit two real quick things. One is during this whole process, and you imply that it's-- I'm sure I know what the answer is-- you and your client work together and you should work together. And it's not your client being out there once you filed and then trying to figure it out by themselves. 

Darin Wisehart  14:12  
No doubt about it. And that's what I always I always make the kind of the funny term, I always say going rogue, because you'll have a client every once in a while that just goes rogue on you know, just decides, hey, I'm going to reach out to the trustee or I'm going to go do this. I'm going to give documents. If you have an attorney, you always want to bounce it off your attorney because these are the types of things that they're moving around the rocks. And you know, sometimes it doesn't matter and sometimes it does. And you can you know, if you hire that attorney, the attorneys job is to get you through the path as stress free as possible, and then land the plane on the case and they can't do that as well if they're not able to stay along with the case.

Steve Altishin  14:50  
I like that. I like that. It's like my asparagus. I buy it, I put it in the fridge, then I don't eat it. What a waste.

Darin Wisehart  14:57  
You've already paid for it for the most part. So Do you know you might as well use it and let let the person save you some money because usually they can. It's, it's the same thing as a CPA for taxes, they'll usually save you as much money as you spend on them. It's it's an offset, and it takes away a lot of that stress and the unknown of I don't know how to do what we're supposed to be doing.

Steve Altishin  15:17  
I like it. I like it. So as usual, we've run it out to the very end, and we gotta close. Thank you so much. This was really good. And it was just really matter of fact, and I really liked that. And so thank you for talking about just what the trustee payment plan is and how it's calculated. Thanks again, Darin.

Darin Wisehart  15:38  
No problem. Thanks for having me.

Steve Altishin  15:40  
Oh, you bet. And thank you, everyone ,for joining us today. If anyone has any further questions on today's topic, we can get you connected to Darin. So until next time, stay safe, stay happy and be well.

Outro:
This has been Modern Family Matters, a legal podcast focusing on providing real answers and direction for individuals and families. Our podcast is sponsored by Pacific Cascade Legal, serving families in Oregon and Washington. If you are in need of legal counsel or have additional questions about a family law matter important to you, please visit our websites at pacificcascadelegal.com or pacificcascadefamilylaw.com. You can also call our headquarters at (503) 227-0200 to schedule a case evaluation with one of our seasoned attorneys. Modern Family Matters, advocating for your better tomorrow and offering legal solutions important to the modern family.