Chapter 13 Bankruptcy

Does Temporary Increase in Income Affect Chapter 13 Bankruptcy?

Debtors who file for Chapter 13 bankruptcy are placed on a payment plan based on their income and expenses. If that income increases, the plan may change; but if it is only a small temporary increase it is unlikely the Chapter 13 bankruptcy would be affected.  Let’s take a closer look:

Debtors in Chapter 13 bankruptcy must pay their secured and priority creditors first.  After those creditors are paid, the debtor in Chapter 13 bankruptcy must pay between 0% and 100% of their income to unsecured creditors. This percentage is determined by the debtor’s income, expenses, secured debt, priority debt and trustee costs. Usually if a debtor’s regular ongoing wages increase by 10% or more that extra income may affect the debtor’s Chapter 13 bankruptcy payment obligations.

For example, if a debtor is earning $3,000 a month and gets a raise to $3,300 a month, that’s a significant increase and at least some of it may need to go to creditors. If you have filed a Chapter 13 bankruptcy case and receive a raise or extra income, you must notify your bankruptcy attorney who will help you determine what new obligations (if any) you have to your creditors.