Chapter 13 Debtors Need To Be Able To Live On A Tight Budget If They Are Paying Their Creditors Less Than A 70% Dividend In The Western District Of Kentucky.
Typically, a Chapter 13 is filed by an individual or couple because their income exceeds the amount necessary to be able to qualify for total relief under Chapter 7. Chapter 13 can also provide debt relief but it requires the debtor to pay creditors some dividend back based on the disposable income left over after paying normal household bills. In the Western District of Kentucky, the courts are taking a careful eye to the debtor’s budget for the purpose of making sure that no money is spent unwisely in order to maximize disposable income that gets paid to unsecured creditors. According to the courts, attorneys now have the duty to advise their clients to reject expensive service contracts in order to switch insurance plans, internet and cable services, child care, cell and home phone service if a better deal exists. If your clients are retired, the courts feel that a cell phone is not a necessary expense and may disallow it from the budget. What dollar amount can you allow for food in the budget? According to the IRS guidelines which the courts are supposed to follow, you can spend $752.00 for food for a family of 4. However, in the Western District of Kentucky, for Chapter 13 budget purposes, you may be limited to spending $600.00 a month for food for four people which is $5 a day per person. Not hardly a lot if you are having to pay $2.32 for your kids school lunches through the Public School System.
This type of budget scrutiny by the court begs the question of whether it is worth it to have both adults in a household working outside the home creating a higher income that disqualifies them for Chapter 7 immediate relief. Rather, these hardworking couples can either deal with their creditors on their own or file a Chapter 13 plan to repay their debts. Unfortunately, if the couple elects to file a Chapter 13 and actually pay their creditors something, they may be subjected to the budget constraints set by the court for five years. It seems that the families who are trying to do the right thing by having both adults work are being punished unfairly by having to submit to a bare-bones budget in order to pay back more of their debt in a Chapter 13. I wonder if the family who chooses to create less income and have one parent stay home with the kids got it right – the opportunity to be a more involved parent, the opportunity to live with whatever budget they can afford, and the opportunity to pay no debt back through Chapter 7 relief.
