Chapter 13 Bankruptcy – Payroll Control
In some jurisdictions, payroll control is mandatory. This is where the money to pay your Chapter 13 trustee is deducted by court order out of your pay. Now, payroll control can only work if you have a job. If you are self-employed, or if you are on unemployment, if you are on Social Security disability or if you have rental income or other types of income when you are not employed, payroll control cannot kick in. However, if you are someone who gets a paycheck, whether it’s weekly, biweekly or any other frequency, then payroll control can help you and I recommend it.
Payroll Control Upsides
The great thing about payroll control is that as long as you stay employed, you know that your Chapter 13 trustee is going to get paid. Therefore, the remainder of the funds in your paycheck are what you have available and that you must budget with. I’m talking about your regular mortgage or your rent, food, clothing, electricity, gas, transportation, insurance; all of those things should be paid out of what’s left out of your paycheck.
Payroll Control Downsides
The problem if you don’t go on payroll control is that you now have to budget not only those expenses I just mentioned, but you also have to budget in the trustee payment. The trustee payment is the most important payment. If you don’t pay that payment first, and you pay everything else, there’s not going to be enough money to pay the Chapter 13 trustee. When you can’t pay the Chapter 13 trustee, your case dismisses and you no longer have bankruptcy protection. Many of my clients say I want to pay the trustee on my own; I don’t want my job to know about it. It’s going to be bad for me. The truth is your payroll is deducting for all kinds of things for people. If you work at any kind of major corporation, there are many people on Chapter 13. There are many people with child support deductions. There are many people with garnishments from creditors and other types of deductions. So the statement that you don’t want your job to know or your job is not going to be able to do it is simply false. Further, your job cannot advertise to all the people that work in your company that you are on Chapter 13 deductions. The payroll department has to keep that confidential and not advertise that to the rest of the company. So if you are working and you go on payroll control, you have a much greater chance of success with your Chapter 13 then if you don’t have the ability to go on payroll control.
Switching Jobs During Payroll Control
If you switch jobs, the payroll control order can be submitted to the new job. There simply is no excuse why someone who is really serious about saving their home or saving their vehicle or reorganizing other types of debt would object to having that monthly payment taken out of their pay. If they do object, they simply are not serious about really making a payment plan. They might simply want to buy some time or think that they can do this on their own. However, my experience has shown that payroll control is the only way to help the success of a Chapter 13 case.
Now, there are some problems with payroll control. Some clients think if they are on payroll control then they don’t have to worry about the payment to the trustee. However, once the case begins until such time that you see the payroll control deduction come out of your check, you are responsible for paying the trustee. Thus, there may be one or two or more payments that you have to make on your own to the trustee until such time that you see the money being deducted out of your check. I have had many cases that did not go well simply because the debtor stated well, I’m on payroll control and the money was coming out of my check. Well, payroll control often kicks in a little late in the money doesn’t always get forwarded to the trustee on time. Thus, you need to stay on top of your payroll department if this happens to make sure that money gets deducted and then forwarded to the trustee on your behalf. If not, the trustee will be forced to bring a Motion to Dismissed. Your case will be dismissed and you will be in the same position you were before you filed. You will have the option to refile but now you need to bring a Motion to Extend the Stay and you have to go through the filing fee once again. You have to appear before the trustee once again because it’s a brand-new case.
Conclusion
So do yourself a favor. Go on payroll control. Stay on top of that payroll control and make sure they are deducting and make sure they are forwarding your deducted funds to the trustee on your behalf.
