§ 113.10 — Special Drafting Considerations for Debtor with Seasonal or Irregular Income
Revised: June 7, 2004
Debtors with seasonal or irregular incomes are eligible for Chapter 13,1 but the timing of the debtor’s income must be accommodated in the plan.
A farmer, for example, can rarely be expected to make regular monthly contributions to the Chapter 13 trustee. Instead, the plan must be designed around the annual or semiannual receipts from the sale of a crop or maturing livestock. Even if the farming debtor has regular income—a dairy farmer, for example—the amount of that income may vary dramatically from season to season and with it the debtor’s ability to fund the plan.
Debtors who sell on commission and debtors who draw their income from businesses that are seasonal—a toy store, Christmas tree sales, roses, Easter bunnies, fireworks—must design the plan based on best estimates of when income will be available and in what amounts.
Secured claim holders are rarely comfortable receiving irregular payments. In particular, car lenders are not sympathetic to a debtor who can make payments only once or twice a year. These concerns are compounded when the amount of the debtor’s income will depend on future crop values or on the success of the debtor’s efforts at selling.
Debtors with seasonal or irregular income sometimes propose plans based on the debtor’s net income at some specified point in the future. For example, a farmer might propose to contribute all the net income from a wheat crop at the end of the next crop cycle. The best the debtor can do in the plan is to project when and how much income will be available. Feasibility at confirmation will be a test of the debtor’s projections.2
Some help with the problems of irregular income is to find even a small source of regular income that can be contributed to the plan. For example, the debtor engaged in farming who drives a school bus or whose spouse works part-time might be able to pay a small amount each month to keep the Chapter 13 plan warm between larger irregular payments when a crop is sold. When the debtor proposes to fund a plan from the sale of property at some fixed point in the future, the availability of other income on a more regular basis may be critical to the debtor’s eligibility3 and confirmation of the plan.4
The debtor with irregular income should consider a plan provision for periodic income and expense reports to the Chapter 13 trustee. Periodic reports are essential when the proposed payments under the plan will be determined from net income at specified times during the life of the plan.
1 See § 9.2 [ Multiple, Irregular and Seasonal Employment ] § 12.2 Multiple, Irregular and Seasonal Employment.
2 See § 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1 Able to Make Payments and Comply with Plan.
3 See § 9.11 [ Income from Leasing, Selling or Liquidating Assets ] § 12.11 Income from Leasing, Selling or Liquidating Assets.
4 See § 198.1 [ Able to Make Payments and Comply with Plan ] § 111.1 Able to Make Payments and Comply with Plan.