What If My Income Changes During a Chapter 13 Bankruptcy?

Navigating Chapter 13 Bankruptcy can be a detailed and scheduled financial overhaul for individuals and businesses facing insolvency. However, the strict financial plan outlined in Chapter 13 is built on the assumption of consistency, a state of affairs rare in the tumultuous waters of our economy. Here’s what changes in income could mean for your Chapter 13 Bankruptcy and how to steer your financial ship through the storm with measured skill.

Understanding Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is no off-the-cuff remedy for debt; it’s a structured, supervised repayment plan that can run for three to five years. Unlike Chapter 7, which often requires the liquidation of assets to pay off creditors, Chapter 13 allows for the creation of a plan that repays all or a portion of the debt over time. It’s intended to keep valuable property like a house or car when the debtor may have otherwise lost it.

But here’s the rub—your eligibility and the very setup of the plan are intertwined with your income. It’s not just what you make, it’s the disposable income that could pay into the plan to clear the debts. This is where accuracy shines; a misstep in income reporting can be akin to shifting the fulcrum under a balanced scale.

The Income Juggling Act

Picture this: you’re rolling with your Chapter 13 plan, making monthly payments when your income suddenly turns upward or downward. What now? Well, it’s like pausing the show of your financial life to recalibrate the narrative.

Upsurges in Income: A spike in earning potential will likely trigger a closer look from the bankruptcy trustee. You might be asked to revise your repayment plan to reflect the increased income. This could lead to rising monthly payments but may also mean an accelerated path to debt freedom if you end up paying off more of your debt earlier.

Downswings in Earnings: A decrease can mean your monthly payments are recalibrated to match your new financial reality. This might bring some financial breathing room, but it’s crucial to recognize that less income doesn’t always equate to less debt, and the new plan might simply extend the time of payment.

Steps to Take When Your Income Changes

No matter the direction your income takes, it’s essential to communicate any changes promptly and transparently. Here are some steps you should take if your financial circumstances change during Chapter 13 Bankruptcy:

1. Notify Your Bankruptcy Attorney: The first step should always be to inform your bankruptcy attorney of any changes in income. They can advise you on how to proceed and help you navigate the necessary paperwork.
2. Update Your Bankruptcy Trustee: It’s essential to keep your bankruptcy trustee informed of any changes in income, as they are responsible for overseeing your repayment plan. Failure to report changes accurately and promptly could result in dismissal of your case.
3. Review Your Budget: Any change in income should be reflected in your budget. Take the time to reassess your expenses and see where adjustments can be made to accommodate the change in income.
4. Follow the Plan: It’s crucial to continue making your scheduled payments according to the terms of your revised or original repayment plan. Failure to do so could result in the dismissal of your case and potential loss of assets.

The Bottom Line

Changes in income can significantly impact your Chapter 13 Bankruptcy case. It’s crucial to communicate and work closely with your bankruptcy attorney and trustee to navigate these changes accurately and effectively. With their guidance, you can successfully weather any obstacles that come your way during the Bankruptcy. 

At Whitten & Whitten, our dedicated team of bankruptcy professionals possesses the experience, insight, and resoluteness to champion your financial recovery. If your financial circumstances are shifting, don’t wait. Contact Whitten & Whitten today, and together, we can steer you towards a brighter financial future.