A pay raise comes with many benefits but a higher salary could affect your repayment plan if you are in the middle of a Chapter 13 bankruptcy case. Similarly, a loss of income may also have an impact.
Whether your repayment plan has been filed with the court but not yet confirmed, or if you’ve been paying based on an approved plan for several months, changes in income during your Jacksonville Chapter 13 bankruptcy matter. Notify your attorney immediately if there is any shift in your financial circumstances.
Importance of a Filer’s Income
Chapter 13 bankruptcy is a reorganization of debt that requires you to repay creditors through a court-ordered plan. You’ll first file financial papers with the court to disclose income, expenses, and secured and unsecured debt. During mandatory credit counseling, a plan will be crafted to pay all or some of the debt owed based on your disposable income. When your income changes for better or worse, it affects your bottom line and the amount you can or can’t pay.
The trustee or a creditor may require you to hand over all disposable income for at least the first 36 months of a plan, and that amount can change if your total income increases or decreases. A qualified local bankruptcy attorney should be consulted if your income changes drastically during Chapter 13.
Disposable Income is Key
An increase in income doesn’t automatically increase your disposable income. Your lawyer will re-examine your monthly expenses as well to determine whether your disposable monthly income (ie. gross income minus all expenses) has changed. Remember, kids grow older and expenses naturally go up over time.
When a Debtor’s Income is Reduced
An income reduction through a pay cut or job loss makes it harder—or even impossible—for you to continue making the payments authorized by the bankruptcy court. In this situation, you should contact a local attorney immediately. Filing an amendment to the repayment plan and asking for smaller payments could keep you on track, but keep in mind that certain creditor payments cannot be reduced—like mortgage arrearages or non-dischargeable tax debts.
When a Debtor’s Income Increases
An income increase during Chapter 13 bankruptcy affects repayment but depends on whether the repayment plan is confirmed and when the increase occurred. The changes usually have to be substantial for the trustee to request a payment increase. Normally, if the trustee is seeking an increased payment to the general unsecured creditors, it follows his review of your most recently filed tax return.
Before the Court has Authorized a Repayment Plan
Once a repayment plan is agreed upon by you, your creditors, and the trustee, it is submitted to the court for a judge to make it binding on all parties. Until a judge authorizes a plan, the trustee will be reviewing your disposable income to make sure that payments are fair to all parties. With a large jump in income, the trustee will amend the filing before the court authorizes it.
Within 36 Months after Court Authorization
There’s no way to hide an income increase because you’re required to submit a budget and your tax returns each year for trustee review. If the current tax return shows a sizeable increase in household income, most trustees will request an increase in the monthly plan payment. Again, the debtor can combat this demand with a showing of increased monthly expenses which coincide with the new income.
After a Debtor Has Been on a Plan for 36 Months
Repayment plans are a minimum of 36 months but can last for five years. For debtors whose household income is below the median income for a similar size household, the federal bankruptcy code does not require disposable income to be included in payments after the 36th month. After 48 months, many trustees do not ask for payment increases if your income increases because the plan is near the end of the repayment term. Your bankruptcy attorney will review your change in income to ensure remaining payments increase as little as possible.
A Jacksonville Attorney Can Help You Address Changes in Income during Your Chapter 13 Bankruptcy
If you and your bankruptcy attorney have decided that Chapter 13 is best for you, your income status will become crucial to successfully concluding your bankruptcy. If your income changes, your attorney may have to petition the court to lower your payments or help you understand why a trustee might want you to pay more.
Because changes in income during a Jacksonville Chapter 13 bankruptcy can significantly affect your case, you should engage with qualified legal counsel. Call today to set up your initial consultation with one of our attorneys.