When you are not able to handle your financial situation yourself, the court allows you to use Chapter 7 or Chapter 13 bankruptcy to restructure or get rid of some liabilities. By following through with this procedure, you can get out from under overwhelming debt and have a fresh start. While bankruptcy offers a great deal of hope for the future, it can be a complex and stressful process to get through. During bankruptcy, the court must have a full accounting of what you make and owe in order to approve this process and guide you through the necessary repayments. It comes as no surprise then that your actual income during a bankruptcy proceeding is important. If you experience increases in income during bankruptcy, this may alter your rights under the law or your required debt payments.
An Increase in Income During Chapter 13
Chapter 13 bankruptcy is appropriate when you have a steady income and can afford to pay off your necessary expenses, yet you do not make enough to keep up with your debt. You can use Chapter 13 to retain some of your assets, but discharge all or a lot of your debts. The court will give you three to five years to pay your debts on a set schedule rather than the original rate determined.
The amount you are required to pay towards your debts is based on your income minus your necessary expenses, such as rent or a mortgage payment, utilities, transportation, food, and medical care. Essentially, you will pay all of your disposable income toward your liabilities. When you get a raise at work or a new, better paying job, this may need to be disclosed to the court. It can depend on the language of your bankruptcy plans. You should speak with a Cleveland bankruptcy attorney to determine whether you must or should tell the bankruptcy trustee about your higher income.
A greater income may require that you make higher payments toward your debt. This is usually true if it is a significant increase in income, such as if you obtained a new job after completing an educational program or if you started working a second job.
However, higher payments or a revised timetable for paying off your debt may not be required. It will depend on how much your income increased and whether your expenses increased as well. If you received only a minor raise or if the greater income did not result in an increase in your disposable income, then the trustee may not seek any change in your repayment plan.
An Increase in Income During Chapter 7
Chapter 7 bankruptcy is the process many people think of when discussing bankruptcy. It is used to wipe your slate clean. The bankruptcy trustee will eliminate most if not all of your debts, and possibly sell some of your assets to pay debts. This process is appropriate if you have an income but cannot cover all of your necessary expenses or can pay the basics, yet not pay down your debts. It is relatively quick, taking up to six months.
If you are part of a Chapter 7 bankruptcy and your income increases, speak with an attorney about whether you need to inform the court. The increase may not change your circumstances since a Chapter 7 bankruptcy is based on your financial circumstances at the time of your filing. A trustee may not have any right to new income you earned after you file. There are only a few exceptions, including if it is income you were entitled to when you filed making it a part of the estate or if it is income generated from the estate’s equipment or other assets.
If your income has increased significantly, then you may be required to move to Chapter 13 bankruptcy. This will depend on where you are in the bankruptcy proceedings, the provisions of your bankruptcy, how much your income grew.
Consequences for Failing to Report an Income Increase
If your income has grown, for whatever reason, do not be tempted to hide it from the bankruptcy court. You may think the change is not much and that you can safely pocket it. However, the change may be enough to alter your payment schedule or eligibility for a Chapter 7 proceeding. If you fail to report an income increase, your bankruptcy case could be dismissed and you would be back to being overwhelmed with your debt. Your creditors would have the right to demand payment on their own schedule and now the court’s payment plan.
In some cases, you could be charged with bankruptcy fraud, which is a criminal offense. It could lead to fines and imprisonment.
Contact a Cleveland Bankruptcy Lawyer for Help
If you have filed for bankruptcy but now your circumstances have changed, it is not too late to get the help of an experienced bankruptcy attorney at Luftman, Heck & Associates. A change in your income may not lead to any major alterations of your bankruptcy plans. However, if your income has significantly grown, you may need to prepare for higher payments toward your debts.
To learn more, contact Luftman, Heck & Associates at (216) 586-6600 and schedule a consultation.