Chapter 13 plans that allocate income for retirement

When Florida residents file Chapter 13 bankruptcies, they enter into repayment plans that last between three and five years. This type of debt relief allows individuals or married couples to retain their assets, but most of their disposable income must be applied to their outstanding debts. Chapter 13 payment proposals are reviewed and confirmed by bankruptcy judges, and they sometimes take issue with plans even when no objections have been raised by the creditors involved.

In March, a bankruptcy judge in Louisiana refused to confirm the payment plan submitted by a married couple who had filed a Chapter 13 petition in 2016. The creditors involved did not object to a payment plan proposal that devoted 18 percent of the couple’s income to their retirement needs, but the judge felt that this percentage was far too high. He stated in his March 14 ruling that 3 percent of the couple’s disposable income would be a more reasonable figure to devote to retirement needs.

The judge involved was willing to accept that saving for retirement is a prudent and laudable financial strategy, but reports indicate that what he heard from the couple was not enough to convince him that their plan had been made in good faith. The judge may have been swayed by records revealing that the couple had amended their payment plan proposal on several occasions.

The bankruptcy laws are designed to provide those struggling with overwhelming debt the possibility of a fresh start, and the judges who interpret and apply these laws are expected to make decisions that are fair to both debtors and creditors. Experienced bankruptcy lawyers will likely understand what judges look for when evaluating Chapter 13 repayment plans, and they could bear these factors in mind when drafting them on behalf of their clients.