Everyone wants to save money for the future, whether putting away $10 per paycheck, or contributing thousands of dollars to a 401(k) or other retirement plans. For many, however, those financial goals might be difficult to maintain. If you’re struggling to meet monthly bills and other debt payments, it might be time to consider filing for bankruptcy. The process of bankruptcy has benefited thousands during trying economic times. Despite the misconception that bankruptcy is a choice that will either leave you homeless or with crippling credit, it’s actually a highly effective long-term debt relief solution. At Behm Law Group Ltd., our expert attorneys are here to help. We provide guidance and legal protection for those filing for Chapter 7 or Chapter 12 or Chapter 13 bankruptcy in New Ulm, MN, and the surrounding region.
While Chapter 7 bankruptcy is an option for those with household incomes lower than the state median/average income for their household size, Chapter 13 bankruptcy is a process better suited for financial circumstances with steady incomes. Also called “wage-earner bankruptcy,” Chapter 13 bankruptcy reorganizes the filer’s debts into a three-year to five-year manageable repayment plan suited to his or her income. Only portions of unsecured debts (debts without collateral) are paid at no interest and secured debts (debts with collateral such as vehicle loans) are repaid under terms that are more favorable over a three- to five-year period. All disposable income (income not necessary for your reasonable and necessary monthly living expenses) is used to make monthly plan payments, and the filer’s remaining discretionary income is used for living expenses like food, gas, utilities, and home maintenance and many other things.
While the chapter 13 bankruptcy trustee is required to review your reasonable and necessary living expenses, there is also considerable flexibility that allows you to contribute some of your income towards certain items such as saving up to travel for the holidays and making monthly contributions to retirement plans.
Discretionary Income and Retirement
Strictly speaking, making contributions to retirement funds/plans does not constitute a reasonable and necessary living expense such as purchasing food, making vehicle or mortgage payments, etc. However, provided someone has made contributions to a 401(k) or some other retirement account before filing for bankruptcy, the bankruptcy code allows one to continue making such contributions. There is a sound public policy behind this. Quite simply, the drafters of the bankruptcy code wanted to encourage people to save for themselves and build a financial reserve or “nest egg” that could be relied upon later and which would help prevent the need to file for bankruptcy relief again. Indeed, for older filers near retirement age, such contributions can be considered necessary because they will soon be living off that income. If you are currently enrolled in a voluntary or non-voluntary contribution plan through your employer or if you are repaying a retirement account loan, those obligations will be worked into your case and will continue normally.
Filing for Chapter 13 bankruptcy in New Ulm, MN, or the surrounding area doesn’t mean that you will lose the ability to save something for yourself during that three- to five-year repayment period. Contact Behm Law Group Ltd. at (507) 387-7200 or stephen@mankatobankruptcy.com to learn more details about Chapter 13 repayment bankruptcy.
