A Chapter 13 bankruptcy is a type of bankruptcy you can file where you submit a plan to pay any unsecured debt over 3 to 5 years with disposable monthly income. Any unsecured debt not getting paid 100 percent during the plan will be discharged at the end of the bankruptcy.
Because the Chapter 13 plans can last for up to five years, there are times a filing debtor may have no contact with the bankruptcy court, its administrators, or the debtor’s lawyer for long periods of time. This lack of contact can create special problems for filing debtors.
One of the problems that can happen toward the end of the Chapter 13 involves the plan being financed through wage garnishment. A Motion to Vacate Wage Deduction Order in a Chapter 13 often needs to be made by the filing debtor at the end of the plan, or certain problems may arise.
When you make your plan, you should know when the last payment is due, but unfortunately, before a trustee will cease wage deductions, he or she will most often have to be reminded to do so through a Motion to Vacate Wage Deduction Order. This is a legal motion made by you and your attorney to vacate a wage garnishment used to fund a plan. The order is a legal document from the court mandating that the employer cease wage garnishment.
Too often, wage garnishments continue at the end of the plan and accumulate in the trustee’s account. Eventually, all the funds will be returned to the filing debtor, but until that occurs, certain problems might arise.
The biggest problem that normally arises for the accumulation of such funds is when the house payment is being paid by the trustee through the funds. The trustee will discontinue paying the plan on time but the garnishment funds will continue to come to the trustee account. Funds to make a house payment will not be available to you and means you might go into default for not paying your house payment because you do not have the funds to do so. The trustee will have the funds but will not be making the payments any longer. The lapse of time for the wage garnishment to cease can be several months long without a formal order to cease.
Some trustees will take it upon themselves to eliminate this problem, but the greatest majority do not. The solution to the problem is have your lawyer file a timely Motion to Vacate Wage Deduction Order. Unfortunately, you may not have had contact with your lawyer for years because of the plan that has been in place so long during the Chapter 13. Frankly, many lawyers will either forget your time line on the plan or you may have never discussed the possibility in the beginning of your filing. Too, turnovers occur in lawyer firms like any other company, and the lawyer you hired may not even be working for the law firm he or she worked for when you filed.
In any regards, it is normally the responsibility of the law firm to help you complete your Chapter 13 to its entirety. Bankruptcy laws can be very complicated at times, and it is always a good idea to discuss this type of information with your bankruptcy lawyer prior to you filing.
- What is a Motion to Incur Debt in a Chapter 13? (betterbankruptcy.com)