In each chapter 13 case I will get a phone call that goes something like this:
- “Hello, Mr. Balena?”
- “This is Sample Client. You filed a chapter 13 for me.”
- “My pay check deduction is not enough for my plan payment.”
Why would you as a client even suspect that? The pay order approved by the court and sent to your payroll department sets forth a monthly amount that must be sent to your trustee. The answer to that question has to do with an application of 7th grade math.
Remember those word problems you loved to hate? I was no different. My degree from Penn State only required one college level math class. I did one better and took two. Math was just one of those things I never thought would have application in real life for me. I was wrong. Chapter 13 is one big word problem. I am about to take you on the quick tour of 7th grade math. Strap in and get ready to ride.
For most workers paydays break down like this:
- Semi Monthly
For the purposes of this discussion let’s assume that you have a monthly plan payment to the trustee of $1,000. That way it will be easy to understand the calculations.
Monthly pay period
A monthly pay period is the easiest. Whatever the amount that is in the pay order is the amount that will be deducted and sent to the trustee. The only place I routinely see monthly pay periods is client who works for colleges and universities. Plan payment deducted per pay $1,000.00.
Semi Monthly pay period
This is one of the easiest to figure out, but sometimes clients stumble over it. Semi monthly means two pay periods a month. Usually the 15th and the last day of the month. 24 pay checks per year. The place I see this most often is clients who work in health care. The calculation is simple. Half of the monthly amount is deducted from each check. In our example the plan payment is $500 per check. Clients often mess this up conceptually. When asked how often they are paid they respond, “bi monthly.” Bi monthly means every two months.
Bi-weekly pay period
This is really where people don’t understand their financial situation. Bi-weekly means every 2 weeks. 26 pay periods per year. This really confuses most clients. They conceptualize two checks a month. They forget that in two months they get three checks. The deduction calculation goes like this:
- Monthly plan payment times 12 months in a year equals $12,000.
- Divide $12,000 by 26 pay periods.
- Deduction for plan payment is $461.53 per check, not $500.
Weekly pay period
Weekly pay periods give chapter 13 clients kittens as well. Most people who are paid weekly figure 4 pays a month. That would be great if every month was February with 28 days. You need to work the calculation again.
- Multiply you monthly plan payment by 12. This equals $12,000.
- Divide 12,000 by 52 weeks in a year.
- Deduction for plan payment is $230.76, not $250.00.
This is not magic, nor is it rocket science. It is just one of those things they taught in school that we all figured we would never see again. It is called averages. Welcome back to 7th grade.