J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization

Our Southern District of Texas bankruptcy court is the only one in the entire United States, so far as I know, that has adopted a form of chapter 13 plan that allows debtors in bankruptcy to create an "emergency savings" account with the chapter 13 trustee. This new provision is effective with cases filed January 1, 2015.

Debtors in chapter 13 can contribute a set amount per month, as part of their chapter 13 plan payment, and it is saved for them by the trustee at no charge (no interest is paid on the money either).

During the plan, if and when the debtors have an "emergency" such as a car breakdown or other issue that may otherwise cause them to miss a plan payment and the plan to fail, the debtors can have their attorney file a short notice with the court, and if no one objects in 15 days, the money is distributed to the debtors by the trustee. If the debtors don't need the emergency savings money during the plan, the trustee distributes it to them at the end of the plan.

Having an emergency savings provision in a particular plan is not mandatory, but it is encouraged by the court. The court has indicated that there could be a question as to the "feasibility" of a particular plan, if there is no provision for savings for emergencies.

For example, someone filing a new case after the dismissal of a prior one for non-payment, could be required to have an emergency savings fund as a condition of the court extending the stay in the new case.

To have an emergency savings provision in a chapter 13 plan is a very progressive idea, and so far, my clients like it. They are a little concerned at first when we first mention it, but once we explain that it is for their benefit, they like the idea. We'll see how it works in practice, and if it helps debtors complete their plans.

What do you think about this emergency savings idea for chapter 13 plans? Do you think it is a good idea? Do you think it will help debtors complete their plans, or do you think they should be made to pay every cent that they can to their creditors, if their creditors will not be paid in full through the plans? Your comments and questions are welcome!

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