A potential advantage to Chapter 13 bankruptcy

One difference between filing for bankruptcy under Chapter 7 and filing under Chapter 13 concerns how the means test for the different chapters treat contributions to retirement accounts such as 401(k) and IRA plans.

In Chapter 7, any contributions you make are ignored.

However, in Chapter 13, contributions to a retirement plan can reduce the amount that you have to make for your plan payment to the trustee. For example, if the chapter 13 means test indicated that you should make a $1000 per month payment to your creditors through your plan, but you contribute $600 per month to a 401(k) at work, your plan payment only has to be $400!

In this way, you can save for retirement while completing a chapter 13 plan (which takes from 3 to 5 years to finish), and you will essentially be paying yourself and preparing for your future, instead of tossing that money to creditors


By Doug Beaton

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