Posted on Jan 19, 2015

Our Bankruptcy Court here in the Houston, Texas area (the Southern District of Texas) is the only one in the entire country, 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 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).

Then, 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.

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. In a particular case, 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.

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.

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