subject: The Ways A Change In Income Can Affect Your Chapter 13 [print this page] 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. Throughout your repayment plan there will be a few rules you will need to remember. Report any change in income you may have during your chapter 13 immediately. The reason for this is that your Chapter 13 repayment plan is based on several different factors, one of these of course is your ability to repay the debt you've incurred based on your current income.
This rule is there not only so they can get more money out of you if your income increases. If you lose hours at work, lose your job, or have any other unforeseen decrease in income, your payment plan can be modified and possibly lowered. If your income becomes too low, you may want to look into declaring for a Chapter 7 bankruptcy instead.
This does, however, work both ways. If your income increases you must report it. Generally this is referred to as the best efforts test. This means that you have to use your best efforts to repay your creditors if you get a raise. It should be noted that your income is not the only thing that determines how much you have to pay on your Chapter 13 payment plan. With all these factors to consider it's important to have an experienced, qualified bankruptcy attorney.
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 after all the hours of court hearings, preparing your repayment plan, and clearing you eligibility requirements that you miss out on chapter 13. 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. If your Trustee rules that you've withheld your income information deliberately, you could be charged with bankruptcy fraud. The punishment for bankruptcy fraud is steep, up to $250,000 in fines and up to five years in federal prison.
