Not only do Chapter 13s require unique expertise, they also usually require a lot strategizing and planning to lower your payments.  This is why it is very important to consult with an attorney as soon as possible.  And, again, Chapter 13s are very complex and this section is not designed to substitute for an in-person consultation.  Nonetheless, you will find this section very useful.

Let’s start with some basics on Chapter 13.  A chapter 13 does two basic things….it requires you to make monthly payments to the trustee and allows you to continue to make spend on reasonable amount of money on what I call “allowable categories”.  This is means you can allocate money in your budget for obvious needs such as housing, food and utilities.  What is nice, is that your payments for secured debt on things such as your home and cars are legitimate as long as not considered abusive.  In other words, you may qualify for a Chapter 7  because your mortgage payments are somewhat high.

In all, there are about 40 different categories which the Bankruptcy code recognizes. Others include health insurance, life insurance, educational expenses, 401K payments, transportation expenses and charitable contributions. The trick is to maximize the allowable categories and not budgeting for expenses the code does not allow. Sorry, monthly visits to the spa and manicurist, as necessary as they may seem, don’t count.  Credit card payments don’t count either because go away in Chapter 13.

So how do you present the budget?  That is where a good attorney can advise in an initial consultation but some of most common suggestions are the following:

• Increase and/or obtain health and life insurance
• Increase 401K contributions
• Get a new car (This may sound crazy but it’s true—Click here to learn more)
• Starting making charitable contributions to recognized charity
• Start saving for school
• Document child care expenses even if performed by family members
• Estimate future medical expenses

So is this a budget you have to live with or adhere to throughout the plan?   NO NO NO! The trustee is not the budget police…as long as you get confirmed all you have to do is keep making your payments and then budget you money as you see fit.  That means, after confirmation, maybe you reduce your life insurance that you maxed out prior to filing.  Maybe you reduce your 401K contributions after you file to give yourself a bit more cash.  Or you stop paying Grandma full price for baby-sitting.

So what we need to do is temporary budget adjustments that you can readjust later to give you more cushion once the case is confirmed.  When such adjustments can save you thousands, the need for experience becomes clear.