|
Back to “Understanding the Chapter 13 plan in the NDGA”
How Do “Step Plans” Work
in the Northern District of Georgia?
During the course of a five year Chapter 13 plan, debtors can expect changes in their finances. Sometimes these changes are unexpected, but sometimes these changes are known well in advance.
The judges in the Northern District of Georgia expect that Chapter 13 debtors will account for known changes by including a “step provision” in their plans.
Here are some examples of the types of things that will require a step provision:
- a lease that terminates at month 27 of your plan
- a student loan payment in which the first payment is due 8 months into your plan
- probation fees that end at month 9 of your plan
In these types of situations, a step provision in your plan causes an automatic adjustment of your plan obligation. Here is an example:
When he filed his Chapter 13, Tom was leasing a vehicle from GMAC with a payment of $375 per month. The lease ends on May 31, 2009, which is month 17 of Tom’s plan. Tom’s plan provides for a trustee payment of $400 per month. It also contains a step provision whereby the plan payment increases automatically to $775 per month on June 1, 2009 - month 18 of Tom’s plan.
In this situation, Tom probably won’t have $375 per month available on June 1, 2009. When his lease ends, he will need replacement transportation. In order to get this replacement transportation, however, Tom will have to take certain steps.
- he will need to find a replacement vehicle and negotiate for its purchase or lease
- with the help of his lawyer, he will need to file an application for outside loan with the trustee. Note that the loan application limits the monthly payment to $300 per month - any request for a higher payment would need to be heard by your judge.
- he would need to amend his budget (Schedules I and J) and his plan to change or eliminate the step provision and present this proposed modification to the judge
If Tom does not take these affirmative steps to change this step provision, his plan will automatically change and his new obligation of $775 per month will kick in.
In this case, if Tom’s replacement vehicle has a payment of $290 per month, the trustee will expect that his plan will increase by $85 per month ($375 - $290 = $85).
As you can see, step provisions can create a lot of pressure for debtors. If Tom does nothing, and the step provision kicks in, he will start falling behind on his payment obligations. A delinquency will eventually trigger a trustee motion to dismiss, and Tom could lose find his case dismissed.
Step plans definitely add a layer of complexity to Chapter 13 cases and need to be managed carefully.
|
