subject: How Income Change Affects Your Chapter 13 [print this page] How Income Change Affects Your Chapter 13
Chapter 13 bankruptcy is a huge relief for the people that file it. After you are approved you'll have that long awaited protection from foreclosure, help with your credit card debt, and your wages will no longer be garnished. After the judge approves the repayment plan your creditors have to accept it no matter what.Don't be fooled though. You aren't completely out of hot water just because you aren't constantly getting calls from bill collectors anymore. You have to remember a few rules throughout your repayment plan. If you have a change in income during your Chapter 13, you have to report it immediately. This is because your Chapter 13 repayment plan is created on the basis of several factors, and one of those obviously is your ability to repay your debt based on your income.This rule is there not only so they can get more money out of you if your income increases. If you lose your job, hours at work, or have any other unforeseen decrease in your income, your payment plan can be modified or even lowered. Chapter 7 bankruptcy may be an appropriate alternative should your income become too low.This does work both ways, however, if your income does increase you must report it. Generally this is referred to as the best efforts test. What this means is that you must use your best efforts to repay creditors should you get a raise. Your income is not, however, the only thing that determines how much you will have to pay on your Chapter 13 repayment plan. It's important to have an experienced, qualified attorney when considering all these factors.If you fail to report an income change the consequences can be incredibly serious. One of the immediate consequences is that you may not be granted your discharge. Imagine clearing your eligibility requirements, the hours of court hearings, and the formation of your repayment plan all being wasted. It would be incredibly frustrating to not receive the benefits of bankruptcy that you fought so hard for, a risk that isn't worth taking.Losing your discharge may not even be the worst part of failing to report income increases. You might be charged with bankruptcy fraud if your trustee rules that you've withheld your income information deliberately. The punishment for bankruptcy fraud is steep, up to $250,000 in fines and up to five years in federal prison.
