Exterior of the Office Building of Lynch & Belch, P.C. Office

Helping People Get A Fresh Financial Start to Regain Financial Independence

Helping People Get A Fresh Financial Start to Regain Financial Independence

What if my income increases during my Chapter 13 bankruptcy?

On Behalf of | Jan 14, 2025 | Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves paying your debt through a 3-5-year payment plan. Filing Chapter 13 can be a preferable alternative to Chapter 7 if you have assets, such as a home or vehicle, that you do not want to lose.

In Chapter 7 bankruptcy, you may potentially be forced to sell your assets to have your qualifying debts discharged. Chapter 13 can help you avoid this and keep your home or preserve any other assets you wish to keep.

You must have income for Chapter 13

Part of qualifying for Chapter 13 involves having income and showing that you can make the monthly payments through the payment plan. It is common to worry about something happening during the payment period that prevents you from making a payment, but sometimes it is the other way around.

What happens if you suddenly come into a significant sum of money or receive a raise at work? Perhaps a family member passes away and leaves you with a major inheritance or maybe you get lucky and win the lottery.

You might now be in a situation where not only can you make your monthly bankruptcy payments, but you could pay off the entire debt if you wanted? Are you required to do that or can you continue to follow the terms of your payment plan while keeping the rest of the money for yourself?

Federal bankruptcy law considers these types of situations. The bankruptcy code requires you to commit your disposable income to your payment plan.

You must report any changes in income to your trustee

Therefore, if your income increases substantially, you must report this change and your monthly payments will likely increase.

You should not hide any income increases from your trustee. One of the trustee’s responsibilities is to ensure you are meeting the requirements of your bankruptcy, which includes consistently assessing your income and financial situation.

Your exact monthly payment depends on how much you can afford after accounting for your necessary living expenses.

For example, maybe your monthly net income increases by $1,000 per month, but your monthly expenses have increased by $400 per month. Your new monthly payment might be $600 per month to account for the increase in living expenses.

Remember that one of Chapter 13 bankruptcy is to provide your creditors with as much as they are owed as possible based on your ability to pay.

How to prepare for an income increase

If you learn you are expecting a major income increase, you can take steps to prepare before your monthly payments potentially get higher.

Perform a financial analysis yourself or with the help of an attorney to get an idea of how much you can expect your payments to increase. Review your budget and determine if there are any areas you can cut back to be ready for the increase.

When you start receiving your extra income, do not spend it. Save some so it is ready to pay when your increased payments come due.

Successfully completing your Chapter 13 payment plan requires commitment and responsibility. Report any changes and stay in contact with your trustee to increase your chance of completing the plan and starting fresh.

FindLaw Network