What is Chapter 13 Payroll Deduction?
Almost every chapter 13 plan involves a monthly payment to the standing trustee, which is in turn distributed to creditors. The two primary ways the monthly payment can be made is either by directly paying the trustee (e.g. mailing a check) or by having an employer withhold the payment from each paycheck.
Each judicial district and each bankruptcy trustee has different preferences. Many prefer payroll deduction, and some require it in particular situations.
Payroll deduction is usually desirable for the debtor, as it simplifies keeping the chapter 13 plan current. For individuals paid biweekly, it can transform the monthly payment into a bi-weekly deduction, reducing the need to budget the plan payment amount over the course of a month. The chapter 13 office takes care of setting the deduction up once it has been duly authorized.
For self-employed individuals, payroll deduction is usually not an option. Individuals with concerns about getting the employer involved in the bankruptcy should discuss the situation with a bankruptcy attorney. While generally a person cannot be fired for filing bankruptcy, there may be situations where employer concerns would warrant using direct-payments. Variable income levels from paycheck-to-paycheck might also suggest a need to pay direct, although this variability might also raise questions of feasibility (if the debtor can make the required payments) that would need to be addressed in order to obtain plan confirmation.