How Does an Increase in Income Affect Your Chapter 13 Plan?

Filing for Chapter 13 means committing to a debt repayment plan that typically runs for three or five years. The amount you pay each month is determined at the time the court approves the plan, based on a calculation of the disposable income you have left after paying for food, housing, utilities and other costs of living. If your income increases during your Chapter 13 plan but your cost of living does not, then your payments may increase or the additional income may have to be handed over to the bankruptcy trustee.

The following are examples of additional income that might affect your Chapter 13 plan:

• Bonus from your job — If you declared at the start of the case that you receive regular bonuses, the average bonus amount is likely factored into your current plan, which means you’ll usually be able to keep the money. But if the unexpected bonus is large, the trustee may require you to transfer it to his or her care until you complete the plan.
• Tax refunds — You may be required to pay your tax refund to the trustee every year until your plan is complete. The trustee uses the money to repay your creditors. However, depending on which exemptions you used, it may be possible to keep your refund. 
• Wage increases — Your Chapter 13 attorney can calculate the impact your raise might have on your payments and can make sure the increase is properly reported to the trustee.
• Side gig income — Income from side jobs and freelancing must be reported to the trustee so it can be factored into your repayment plan. Your payments might not change unless the extra income is substantial.

There may be specific language in your repayment plan that explains how income increases affect — or do not affect — your payments. Additionally, if your existing Chapter 13 plan already has you on track to fully repay all of your unsecured creditors, the court will probably not increase your payment amount. You could, however, choose to make larger payments and complete your plan faster.

No matter how much or how little your income increases, you should contact your Chapter 13 lawyer to discuss it. Your lawyer can help you report the income change to the trustee. If income increases aren’t reported, the trustee can have your Chapter 13 case dismissed, meaning your debts would not be discharged. In some cases, people have been charged with the crime of bankruptcy fraud for not reporting income increases. A conviction means heavy fines and a possible prison sentence.

Jeff Field & Associates helps clients through every phase of Chapter 13 bankruptcy in Georgia. We have offices in Athens, Douglasville, Gainesville, Lawrenceville, Marietta and Scottdale. Give us a call at 404-381-1278 or contact us online to schedule a free initial consultation.