Dealing with Changes in Income During Chapter 13 Repayment
Getting a repayment plan approved after filing for Chapter 13 bankruptcy is a major step in the process. However, approval is only an initial element of the journey – depending on the details of the individual payment plan, Chapter 13 filers will need to make regular payments for three to five years before their debts can be fully discharged.
During Chapter 13 repayment, debtors have a responsibility to report any changes in income to the bankruptcy trustee. This is true whether income increases or decreases.
Chapter 13 debtors have a duty to use their “best efforts” to make a bankruptcy plan work. Debtors who see a significant increase in their income – for example, by getting a raise or taking on a second job – may be asked to increase their monthly payments.
However, just like the initial states of Chapter 13 bankruptcy, trustees look at debtors’ disposable income, not simply their net income. Debtors who also experience an increase in living expenses may not have to increase their monthly payments when their income goes increases.
Debtors whose plan is designed to pay off 100 percent of the outstanding debt may be able to exit bankruptcy earlier by making larger payments.
Debtors who experience a significant decrease in their disposable income may, in some cases, be able to have their monthly payments reduced without compromising the success of their bankruptcy plan.
Consequences of Failing to Report
Given how stressful keeping up with a Chapter 13 repayment plan can sometimes be, it can be tempting to think about not reporting increases in income. Many debtors make the mistake of thinking that the trustee won’t discover the change, especially if it is relatively modest.
In reality, failing to report changes in income can have serious consequences. Debtors run the risk of having their bankruptcy case dismissed and losing their right to debt discharge. After years of work, they will end up right back where they started.
In cases where the trustee determines that income information has been deliberately withheld, debtors can be charged with bankruptcy fraud. If convicted, they could face a punishment of up to $250,000 in fines and up to five years in federal prison.
If you have any questions about changes in income during Chapter 13 repayment, it is always a good idea to consult with an experienced bankruptcy attorney, such as the attorneys at Rothschild & Ausbrooks, PLLC. Send us an email or call (615) 866-2265 or toll free (866) 656-8909 to arrange a free consultation.