A common question while determining whether to file for Chapter 13 bankruptcy or during a pending Chapter 13 case is: What happens if your income changes during the case? If my income goes down, how will I make the plan payments? If my income goes up, do I need to report it to the trustee? Will the trustee raise my monthly payment?
Reporting your income
In the central district of California, the Chapter 13 trustee requires all debtors to provide their tax returns every year. The trustee reviews each tax return and looks at income changes.
Income Increase During Chapter 13 Bankruptcy
If your income goes up, the trustee has the option to file a motion to modify the plan payments. The trustee will request a higher plan payment if you are not already paying 100 percent to your unsecured creditors. If you receive notice of this motion, you should notify your Chapter 13 bankruptcy attorney immediately. You and your attorney can go back, make sure the income actually went up. Then you can also recalculate your expenses. In many cases, the cost of necessary expenses also went up, therefore offsetting your increase in come.
On the other hand if there is no change in expenses, then the court may grant the trustee’s motion to increase your plan payments.
Income decrease During Chapter 13 Bankruptcy
If your income goes down, you should also speak to your Chapter 13 bankruptcy attorney immediately. Your attorney can also file a motion to modify your plan payments. If your disposable monthly income (DMI) is lower than when you filed your case, there is a high possibility that the court will grant the motion to decrease your monthly plan payments.
Temporary Decrease in Income
Additionally, if your income dropped for a couple of months, or you have out of the ordinary expenses, your attorney can request to suspend payments for few months to allow you to pay those bills, or catch up on expenses.
It is important to remember that you should always provide status updates to your bankruptcy attorney. If there are any financial changes, whether positive or negative it is best to consult with your bankruptcy attorney to determine your options.