Two Reasons Your Chapter 13 Plan Payments Have Suddenly Increased

When you file for chapter 13 bankruptcy, the court will subtract your approved expenses from your income to determine the amount of money you must pay into your plan every month. Although it's highly likely this amount will stay the same throughout the life of your plan, here are two times when the court may order you to pay a higher amount.

The Court Discovered You Make More Money

The court requires debtors to report any income increases so their plan payments can be recalculated to ensure creditors get paid what they're owed. However, it's not unusual for petitioners to forget about this rule or purposefully avoid reporting the income change.

What most people don't realize is the court also requires debtors to submit tax returns each year since it wants to verify income and ensure the petitioner is paying taxes on time (particularly if tax debt is part of the repayment plan). If the petitioner doesn't turn over tax records, the court may obtain them directly from the IRS. So, even though you may have been able to avoid reporting your raise or bonuses, the court will find out about them eventually.

As soon as the trustee in your case sees you're making more money, he or she will have the court raise your plan payments. The only way to avoid this outcome is to show there's also been a hike in your expenses and, even then, you may be required to turn over any bonuses or special commissions you earned.

Be aware your chapter 13 case may be dismissed if you continuously fail to report changes in your income, so it's best to stay on top of these things to prevent this from happening.

You Pay Off Some of Your Bills

In a chapter 13 bankruptcy, all your disposable income becomes property of the court to be distributed to your creditors as dictated by your payment plan. The only money you don't have to turn over is the cash used to pay your approved living expenses, such as rent and child support. If you manage to pay off one of your bills while your bankruptcy case is active, the court may raise your payments to account for the increased disposable income available to you.

For example, your child turns 18 and the support order for him or her ends. The money you were paying the custodial parent will be claimed by the bankruptcy court and sent to your creditors.

As with your income, these types of changes must be reported to the court. Thus, be prepared to turn over the excess funds to your trustee when he or she eventually comes calling.

Contact a bankruptcy law group like Haven Law Group, P.C. for more information about this issue or help with your chapter 13 case.