How Does A Salary Increase Affect A Wage-Earner Plan Under Chapter 13?
Under the terms of a Chapter 13 wage-earner plan, debtors are required to commit the next three to five years of disposable income to the repayment plan. Disposable income is defined as any income that is not required to meet a debtor and a debtor’s dependant’s basic needs.
As is the case with everything in life, however, no one’s situation ever stays exactly the same forever. Promotions at work are possible that can cause a debtor’s income to increase after the plan is in place. This raises important questions about how this increase will affect the existing plan schedule.
At Debra Booher & Associates in northeastern Ohio, our lawyers have considerable experience handling Chapter 13 bankruptcy cases and can answer these and other Chapter 13 questions as they arise. We pride ourselves on providing information in a straightforward manner, offering reassurance, competency and zealous advocacy throughout the bankruptcy process.
What Happens To An Income Increase?
Typically, if the income increase is significant and there are no offsetting expenses, then a debtor may not be able to retain the increase in income.
Debtors are required under the Bankruptcy Code to contribute their projected disposable income toward plan payments for the first three to five years. Even though the Bankruptcy Code enforces this requirement only when the trustee or a creditor demands it, at the beginning of the plan, the trustee usually always requires it.
Your Circumstance Will Be Taken Into Consideration
How your payment plan will change will depend heavily on your circumstances. You may get a raise, another job or change jobs entirely. Either way, this can impact your repayment plan.
For example, if your income changes after you file your bankruptcy petition, but before the court has confirmed the plan, the plan becomes legally binding to creditors.
Furthermore, over time, the Bankruptcy Code does not require trustees to closely monitor your income after three to five years of a confirmed plan have passed. In fact, there is no specific rule in the Bankruptcy Code that requires you to contribute your disposable income to your plan. As such, changes to your plan may not even be necessary.
How Are Changes To A Plan Determined?
During the time between filing a bankruptcy petition and getting confirmation from the courts, the bankruptcy trustee will watch your disposable income to make sure payments fit with your income level.
If the trustee notices an increase in salary and an increase in disposable income, he or she may request an increase in payments. This increase may actually decrease the length of time for the plan if the plan goes beyond 60 months. A debtor in this situation may pay off their debt sooner and receive their discharge earlier.
If your expenses also increase along with your income increase and your disposable income does not change, then changes will not be made to your repayment plan.
It’s important to know: Changes to your income within the first three to five years of a repayment plan don’t always mean your payment amounts will be changed. Changes will only be made if your income increases by a significant amount.
Speak With A Bankruptcy Attorney At Our Firm
Salary increases are supposed to be celebrated, but dreaded. Unfortunately for people with on a Chapter 13 repayment plan, this could be the sentiment.
At Debra Booher & Associates in northeastern Ohio, our experienced attorneys are ready to explain the ins and outs of Chapter 13, including the possibility of changes to a plan. If you would like someone to put your mind at ease, contact us today online or by phone to get help now: 888-542-1300.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.