Chapter 13 Bankruptcy Has No Minimum Payment For Credit Cards

24 Feb Chapter 13 Bankruptcy Has No Minimum Payment For Credit Cards

Chapter 13 bankruptcyfilings often requires that a filer pay something every month to a trustee. The trustee distributes those payments according to a court-approved plan. Nothing in the Bankruptcy Code requires a minimum payment, aminimum dividend, to be paidto anygeneral unsecured creditor such as like a credit card. They often get zero.

The required payment to a trustee is based on a filer’s Projected Disposable Monthly Income. For a below-median filer, thisis based on expected income and expenses over the next few months based on information from the recent past. Above-median filers are “blessed” with having to pay the results of the Means Test, Form B22C. Both filers may adjust for virtually certain expected changes. Above-median filers could end up paying nothing for five years. Below-median filers have to pay something. (I smell a rat, but that’s another blog.)

The Bankruptcy Code has requirements for the distribution of the payments: Administrative expenses like the trustee and perhaps your attorney, and family support obligations, and recent taxes must be paid in full. Anything left over goes to the general creditors. There is no requirement that anything be left over.

Underlying the entire filing is an obligation to act in good faith, and a trustee or creditor can explore the good faith of presenting zero payments to general unsecured creditors. That exploration looks at your accuracy, honesty, motivation for a Chapter 13 filing, among other factors. There is no requirement to pay the credit cards anything so long as the proposed payments are your best efforts under all your personal circumstances.

Many judges and trustees used to require something. In Massachusetts, the threat used to be a 10% dividend to avoid an extensive investigation and trial into the good faith. I’m told in parts of California there still is something of a requirement. But that requirement is not founded in the Code. It’s a morality play, a moral judgment being made by professionals who should know better and can know better if they do their research.

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L. Jed Berliner, Western & Central Massachusetts Consumer Lawyer

L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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