|July 22, 2014|
Previously published on July 2, 2014
Many times I have met with people who have great concerns about filing bankruptcy. They are afraid that the court will tell them how they can or cannot spend money. Often, people put off filing a bankruptcy for many years because they are afraid of the loss of control. The irony is that they have already lost control and that is why they come to see a bankruptcy attorney. The real truth is that crushing debt has already begun limiting what they can and cannot finance and purchase. Cash flow is crippled because credit card payments take what is left of the family’s disposable income and they are largely paying for items that were purchased years ago and have either been given away or broken. The real truth is that their standard of living has been declining for some time and it has been completely out of their control.
There are two kinds of bankruptcy. The bankruptcy most people are familiar with is a Chapter 7. That type of bankruptcy wipes out the debt with no payment obligation. There is a second and equally effective type of consumer bankruptcy. That is a Chapter 13. This is the bankruptcy people have to file if they are facing a foreclosure or a repossession of a vehicle or if their income is very high. This requires payments to the court to help catch up on those items a person wants to save. This is where the fear of being told what they can and cannot do comes in. The person filing must propose a budget that they can live on and still make the payments.
People are concerned that they may have to give up eating out or tithing to the church or giving money to their children. If they have done those things instead of paying the car payment or the house payment, then yes they may have to give them up. However, what really happens is that the person filing proposes a budget they can live on while making payments to the bankruptcy court to distribute to their creditors. As long as the budget will support the payment, the court generally does not concern itself much with how people are spending their money on a day-to-day basis. Once the payment is arrived at, it usually does not change unless the person filing requests it or there is a major change in life circumstances causing a change.
So, can people continue to live and spend money even though they are in a Chapter 13? Yes, yes, yes!! The court understands that there are needs that must be met or the case will fail. That is why the court allows you to budget entertainment in your case. You are certainly allowed to continue to tithe in the case. You can still eat out and can still go on vacation. What you cannot do is continue to be enslaved by the creditors who have been making your live miserable over the last several years. Most people can definitely live with that. The real key is recognizing that there is a problem. If most of your waking hours are used to attempt to balance your creditors or if your sleeping hours become waking hours because of the stress, it is time to take action.