Filing for bankruptcy can be disheartening and confusing. Keeping up with all the paperwork, the payments, and the hearings is stressful enough as it is. Things can get even more complicated when extra income is added to the equation. Make sure you know what you need to do when you get extra income while going through a Chapter 13 bankruptcy.
One of the most significant factors you need to calculate your Chapter 13 plan payment is your household income. For most people, income from employment is their main source of funding. As such, the Chapter 13 bankruptcy court will base their Chapter 13 repayment plan only on revenue from their income. Then they’ll also consider their expenses, debts, and some other minute factors. But in a case where you also earn an additional income from other sources, the bankruptcy court will use this income as well when calculating your total payment.
Let’s discuss further some prominent questions about income from secondary sources in Chapter 13 bankruptcy.
What Happens if I’m Paid a Bonus During My Chapter 13 Case?
If you’re paid a bonus, contact your bankruptcy attorney immediately. If it’s a small amount, your bankruptcy trustee may permit you to keep the bonus. However, a substantial amount of money may impact your Chapter 13 payment plan. Your bankruptcy trustee may request that you transfer all or part of the money to his care.
Ensure that your bankruptcy lawyer is informed about both periodic and yearly bonuses you regularly get from your employer. This amount is factored into your Chapter 13 plan payment. In most instances where you’ve informed the bankruptcy court beforehand about your periodic and yearly bonuses, you’ll be allowed to keep the money.
What Happens to My Tax Refunds in a Chapter 13 Bankruptcy Plan?
A tax refund is treated as an asset during a bankruptcy case. Because of this, you must consider it during the calculation of your Chapter 13 payment plan.
Due to the fact that tax refunds are treated as disposable income, you can use the funds to pay unsecured creditors. Thus, your Chapter 13 plan may necessitate that you pay your tax refund to your bankruptcy trustee every year till you’ve completed your bankruptcy case. The trustee then uses the fund to pay your unsecured debts.
However, depending on your location, it’s possible to exempt your tax refunds as liquid assets. This depends a lot on the bankruptcy exemption you take on other assets. Debtors may be mandated to submit some copies of their tax returns to their Chapter 13 trustee yearly.
What Happens If I Get a Raise During Chapter 13?
You must report any significant change in your income to the Chapter 13 bankruptcy trustee. However, inform your Chapter 13 bankruptcy attorney before doing that.
The Chapter 13 bankruptcy attorney will calculate the impact on your Chapter 13 bankruptcy plan. However, if you’re making a 100% payment on your unsecured debt, then the bankruptcy court won’t ask that you increase your payments. However, you may include this income raise to get a bankruptcy discharge earlier than planned.
Your Chapter 13 payment plan may increase if you obtain a significant raise. The attorney may also increase the limit by reviewing your monthly expenses to know whether you now have more disposable income.
What About Side Hustle or Part-time Income?
As mentioned previously, income from all sources must be included when calculating your Chapter 13 payment plan. Thus, part-time jobs of any type should be reported to your Chapter 13 bankruptcy trustee. This includes income from your side job that you began only after filing your Chapter 13 bankruptcy case.
Talk to your bankruptcy attorney if you intend to take a part-time job for a set number of months for things like your Christmas expenses or to purchase school clothes for your kids. The bankruptcy trustee may not amend your payment plan unless the income is very substantial or you keep doing the job for an extended amount of months.
Does My Spouse’s Income Count When Determining My Chapter 13 Payment Plan?
The Chapter 13 Bankruptcy trustee determines your payment plan based on your household income. As such, your household income will include income from your spouse, even if your spouse is not filing for bankruptcy relief. However, it’s possible to also count your spouse’s expenses when calculating your budget.
In an instance where your spouse has some additional deductions, you can take advantage of those deductions to reduce your household disposable income. Also, you can use your spouse as a reason to make certain deductible expenses like utilities, food, clothing, etc.
Although the income of your spouse is added to your Chapter 13 payment plan, the bankruptcy discharge will not include their debt. Thus, your spouse has to file for bankruptcy discharge with you or separately if they want a debt discharge. Most couples with debt to eliminate file for bankruptcy discharge together as it’s much cheaper than separately filing for bankruptcy.
Does the Chapter 13 Trustee Monitor My Income?
Typically, debtors are not mandated to submit copies of their paystubs to the Chapter 13 bankruptcy trustee on regular occasions. However, the trustee may occasionally request for your income figure to keep tabs on your earnings. This is also true for individuals who have self employed jobs.
The Chapter 13 bankruptcy trustee may request that you submit evidence of your current income anytime along the course of the Chapter 13 bankruptcy case. Some debtors are asked to submit annual copies of the tax returns. Debtors are duty-bound to report changes in their income to the Chapter 13 trustee immediately once such changes occur.
How Do I Report Income Changes in a Chapter 13 Bankruptcy Case?
If there’s a significant change in your income, you should contact the Chapter 13 trustee directly. However, it’s best if you consult with your Chapter 13 bankruptcy lawyer before contacting the Chapter 13 trustee. Your bankruptcy attorney may suggest some options to limit the negative effect of a pay increase. Income decrease often leads to a reduction in lower bankruptcy payment plans.
Conclusion
Regardless of the impact a change in your income may have, it’s imperative that you are as open and honest as you can possibly be with your bankruptcy attorney and trustee. Hiding or not disclosing any source of income could ultimately lead to a dismissal of your case and even a fine.
If you find yourself with extra income, for whatever reason, it’s always best to report it as soon as you can. Doing so can keep you out of trouble and can help you successfully complete your Chapter 13 bankruptcy case.