We have many clients who file for Chapter 13 bankruptcy, which is the repayment plan type of bankruptcy. A Chapter 13 can run anywhere from three years up to five years. Many life changes can happen during that time.
It is not uncommon, for example, for clients to obtain a raise or a promotion at work or to even change employers to get a higher paying job. It happens all the time. An increase in income is great for clients from a personal standpoint … but it is a bit of a double-edged sword. If your income increases “significantly” then you will need to contact our firm to determine whether you must pay more into your Chapter 13 payment plan.
A general rule of thumb is, if your income has increased by more than 10% during a year then you should contact us as soon as possible.
Why, you ask? The answer is that if your income has increased significantly without any offsetting expenses then your “disposable income” has increased and when the bankruptcy trustee finds out about the increase then he will demand that your payment plan increase or that your case be dismissed if you are not willing to pay more into your plan.
Part of the dilemma is that the bankruptcy trustee generally does not find out about your increase in income until you submit your tax return each year during your bankruptcy, and that could be several months after you received the increase in income, which is usually too late for us to do much about.
If we know about your increase in income as soon as it happens then we have time to analyze your situation to determine if an increase in the payment plan is warranted (which sometimes it is) or whether you’ve had justifiable offsetting expenses (which often happens) such that you might not have much, if any, of an increase in your disposable income.
So, if you experience an increase in your income after you file a Chapter 13 bankruptcy please contact us as soon as possible.