Preparing Your Chapter 13 Budget–Part Two

10 Jan Preparing Your Chapter 13 Budget–Part Two

In Part One, I discussed the importance of preparing a thorough and accurate budget in a Chapter 13 case, and considered the possibility that underestimating expenses may be at least part of the reason for a high failure rate in Chapter 13s in my district. But how do you prepare a budget?

I have some clients who could teach budgeting–they have lived for so long on such a tight budget that they are truly more expert than I am. But there are also a sizable number of my clients who appear to have given the matter very little thought, and don’t seem to know where to start. The place to start with projected expenses is historical expenses. You have to take a look at what you have spent over the months (and sometimes years) prior to filing.

Sometimes the process is easy. If you pay everything out of one bank account, and especially if you have tracked your expenses in a financial software program like Quicken or MS Money, it may be a matter of minutes to print up some reports that divide your expenses into to categories.

If, however, you are in the habit of paying bills out of more than one account, or paying some or all of your bills in cash, or of paying some or all of your expenses on credit cards, it may be a challenge to come up with a comprehensive list of expenses. You may have to obtain copies of past utility bills, printouts from your doctor and pharmacy, or go through your bank statements to recreate that historical data.

On occasion, it may be necessary to file a Chapter 13 before that kind of information can be gathered, but it should be completed, even if after the filing, in order to get a true picture of the budget. It is important not only for the initial proposed plan, but it may be necessary to prove a change in circumstances at some point while the plan is going on. The ability to show proof of expenses may be a key part of that, too.

Compiling a history of your actual expenses is the first step toward projecting expenses. It goes without saying that you need to be brutally frank with yourself, your attorney, and your spouse when you’re doing this. Whether you budget to the penny, or have never given the matter much thought, the process of examining historical expenses will help project future expenses.

In Part Three I’ll address some additional ways to project expenses, as well as some information on how to plan ahead and evaluate your expenses.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
1Comment
  • thylawyer
    Posted at 10:20h, 12 January

    IMHO, there is no way to budget for unexpected expenses – by definition. An accident, injury, illness, lightning strike, etc., will always be possible, and you cannot budget for those, since the scope of damages and expenses will always be unknown. Even a likely budget, if it overestimates future expenses in any category, such as gasoline or food, unless it is minor or trivial, will set off the trustee’s suspicions of a padded budget. Be realistic, but the reality is, you cannot project every possibility.