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What Happens to My Chapter 13 Plan if My Income Changes?

I got a raise!

It’s wonderful to get a raise or a promotion at work but what happens to my Chapter 13 Plan if my income changes after I file Chapter 13?

The answer to the question of “What Happens If My Income Changes” depends on a couple of things:

The Basic Requirement.

Under the bankruptcy code, you may be required to contribute your projected disposable income toward plan payments for the first 36 months of the plan. I say “may” because the code only requires you to contribute your full disposable income to plan payments if the trustee or a creditor requires it. However, the trustee always requires it, at least at the start of the plan.

Will A Change In My Salary Require A Change In My Plan Payment?

When Your Income Goes Down: When your income goes down, you are going to want your plan payment to go down otherwise you won’t be able to make the payments. In that case, call your NJ Bankruptcy Attorney right away to discuss filing an amendment to reduce your plan payment.

When Your Income Increases: When your income increases, the answer to the question depends on a couple of factors: when and how much the salary changes, as well as other changes in your circumstances.

  • When your income changes increases.
    1. Before the plan has been confirmed. After the case has been filed, but before the court has entered an order making it binding on creditors, the Trustee will be looking closely at your disposable income and will require that plan payments be consistent with your disposable income.
    2. After the 36th month of the plan. If your plan is longer than 36 months in length, the code makes no specific requirement that disposable income is contributed to the plan beyond the first 36 months. In Newark New Jersey, the trustee has accepted this limitation and has not asked for increases in plan payments based on increases in income after the 36th month.
    3. After your plan has been confirmed but within the first 36 months. There is some authority to suggest that the plan is confirmed based upon projected disposable income and that changes in your income do not necessitate changes in your plan payments. Most trustees do not accept that view and will ask that your payments be adjusted if your disposable income changes significantly. If this view were rigidly adopted, the trustee would have to monitor your income closely. The trustee does not do this, and there is the authority to suggest that this is beyond the scope of his or her duties. In Newark, the trustee has been requiring that debtors provide her with copies of income tax returns for the first two years of the plan. If she finds a significant increase in income, she asks for an amended budget to determine whether disposable income has increased. If it has, she asks for an increase in plan payments.
  • How much the salary changes, and other changes.
    The plan payments are based on disposable income, not just income. Disposable income is that portion of your income left over after you meet all of your reasonable living expenses – all of your expenses including not just rent/mortgage, utilities, food, clothing, but reasonable allowances for recreation, etc. If your income goes up, but so do your expenses, there would be no change in disposable income. If your disposable income does go up significantly, the trustee may ask for an increase in your payments. If your payments increase, and if the length of your plan is greater than 36 months, the increase in payments is usually accompanied by a reduction in the length of the plan. In such a case you would simply be paying the plan off sooner.

Chapter 13 Bankruptcy can be tricky – especially in the long-run. This is just one common example of why it is important to stay in touch with your Chapter 13 Bankruptcy Attorney all throughout the duration of your Chapter 13 Plan.

Considering bankruptcy? Todd Murphy, an NJ Bankruptcy Attorney, is the New Jersey Bankruptcy Lawyer people have trusted for over 15 years for Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. Our office is conveniently located to serve all of Essex County, Bergen County, Passaic County, Hudson County, Union County, Morris County, and Middlesex County.