How Does Chapter 13 Bankruptcy Work?
Chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to create a plan to repay part or all of their debts. Under this plan, you can propose a repayment plan with your debtors to repay them in installments over three to five years.
If your income is less than the applicable state median, the plan will run over three years unless the court approves a more extended period. If your income exceeds the state median, the plan must generally run for at most five years. If you have any concerns about Chapter 13 bankruptcy, consult West Virginia bankruptcy lawyers for guidance.
How Do I Handle Changes in My Income During Chapter 13 Repayment?
Once your repayment plan has been approved after filing for Chapter 13 bankruptcy, you have just started a long journey to having your debts fully discharged. Depending on the repayment plan details, you must make regular payments for three to five years.
Additionally, you’re charged with the responsibility to report any changes in your income to the bankruptcy trustee. That’s the case whether your income increases or decreases. You must use your “best efforts” to make the bankruptcy plan work as required. Working with skilled Martinsburg Chapter 13 bankruptcy attorneys can help you remain on track with the plan.
Effects of Income Increase on Chapter 13 Bankruptcy
When filing Chapter 13, the courts determine your repayment plan depending on your disposable income. This income is minus your necessary living expenses such as rent, food, healthcare, transportation, and utilities. The specific language used in creating the plan is crucial, significantly impacting what happens after an income increase or decrease.
If you receive a substantial income increase within the first three years of Chapter 13, the chances are high that you may need to increase your repayments. However, you may only be obligated to make larger payments if the increase is significant. After three years of an approved repayment plan, there is no specific requirement to increase the repayments if it extends that long.
While an increase in your income at that point would probably make little difference, ensure you report the income changes accordingly. The trustee will consider whether there is a corresponding increase in your disposable income. The repayment plan may not be affected if your living expenses increase with the income increase.
Does My Spouse’s Income Increase Affect My Chapter 13 Bankruptcy?
Bankruptcy trustees often evaluate a household’s disposable income when determining a Chapter 13 repayment plan. Your repayment plan will be affected if your spouse’s income increases or they receive bonuses.
Fortunately, you can deduct their expenses to reduce your household’s total disposable income. Their debts also don’t affect your plan. Consult Chapter 13 bankruptcy lawyers in Martinsburg for further clarification.
What if I Receive a Bonus During Chapter 13?
A substantial bonus amount will affect your repayment plan. Since Chapter 13 is designed to help you pay off 100% of your outstanding debt, you may be able to exit bankruptcy earlier by making larger payments. If you typically receive quarterly or annual bonuses, you must report them to the trustee.
In addition to bonuses, you might also have an additional source of income in the form of a side hustle. The Chapter 13 bankruptcy plan considers all your finances, not just the money you receive from your primary job. Ensure you also report these earnings to the trustee to incorporate into your repayment plan.
It’s normal to feel that you should keep the money you earn from your side hustle without affecting your repayment plan, but this could only work against you. Consult experienced Martinsburg Chapter 13 bankruptcy lawyers on the consequences of not reporting all your income sources.
What Happens if I Don’t Report an Income Increase?
It can be tempting to refrain from reporting an income increase during Chapter 13 to avoid spending more of your money on repayments. Many debtors think the trustee won’t discover the increase, especially if it is relatively modest, but the consequences can be devastating once this information is out.
Failure to report the income changes puts you at risk of having your bankruptcy case dismissed. You also could lose your right to debt discharge, putting you in the initial situation where you started.
If the trustee determines that you intentionally withheld crucial income information, you could be charged with bankruptcy fraud. A conviction for this offense comes with steep penalties. You risk being fined up to $250,000 and imprisoned for up to five years in federal prison. Talk to skilled West Virginia bankruptcy lawyers if you think you withheld any information unknowingly.
Will a Chapter 13 Trustee Monitor My Income?
A trustee will usually not closely monitor your income during Chapter 13 bankruptcy. However, they can request proof of your income and pay stubs anytime. They may also learn about the increase once you submit your tax returns yearly during your bankruptcy.
Their work is not to scrutinize your finances for any income increases, so be responsible enough to report the changes. Work with experienced bankruptcy lawyers in West Virginia to ensure you do everything right to have your debts discharged.
Skilled Bankruptcy Lawyers Helping You Attain Financial Freedom
Filing Chapter 13 bankruptcy comes with many requirements, one being that you must report income changes. Skilled Chapter 13 bankruptcy attorneys can guide you on the requirements and everything you need to do during and after the filing.
If you’re looking for experienced bankruptcy lawyers in West Virginia, the legal team at Hinkle Law can help you. We have many years of experience in bankruptcy law and can properly advise you of your rights to help you get a fresh start. We serve residents in Martinsburg, WV, Charleston, WV, and Hagerstown, MD. Call us at (304) 944-0571 or (240) 226-3312 to schedule a FREE case evaluation.