If you're in a Chapter 13 bankruptcy, you're in it for the long haul. Chapter 13 cases last three to five years, and during that time, the court and the Chapter 13 trustee will tightly control your budget. You can spend your money on necessary items, but frivolities are hard to come by, and if you want to finance a purchase, you need court permission.
Chapter 13 Plan Payments
A Chapter 13 bankruptcy requires you to make payments to a trustee for a period of three to five years. The payments can be weekly, monthly, bi-weekly or semi-monthly, depending on how you receive your income. When you file your case, you file a proposed repayment plan, and you propose a plan payment based on your income and expenses. Your bankruptcy paperwork includes a schedule of your household income and a schedule of your household expenses.
The Chapter 13 Trustee
Your payments during a Chapter 13 case go to a trustee, who uses the money to repay your creditors. The trustee will review your proposed payment plan in conjunction with your schedule of income and your schedule of expenses. If the trustee thinks you have unnecessary items in your budget, she can object to your plan and ask the court to increase your plan payment.
Chapter 13 debtors must make a payment that equals their best effort. That means that any money that does not go towards your necessary living expenses must go to the trustee for your Chapter 13 plan. Necessary expenses include housing, food, utilities, cable, phone, Internet, pet care, personal care, diapers, gasoline, transportation expenses, child support, alimony, retirement contributions, reasonable clothing expenses and charitable contributions to qualified religious organizations. You can also have expenses for income taxes if you're self-employed. If you're paying for your house or your car through the Chapter 13 plan, you won't include those expenses in your list, because your plan payment must be high enough to cover these expenses. Judges and trustees may differ across the country about what expenses are not allowed, but courts generally will not approve a budget with high figures for haircuts and cigarettes or for a child's extracurricular activities.
If you want to buy a car or a house during a Chapter 13 bankruptcy, you must get court permission to borrow the money. The monthly payment for the item must be reasonable, and the item itself must be necessary. A trustee is unlikely to approve you to finance luxury items, such as motorcycles, boats, vacation homes or recreational vehicles.
Rebecca K. McDowell is an attorney focused on debts and finance. She has a B.A. in English and a J.D. She has written finance and tax articles for Zacks and eHow.