The Ways a Change in Income Can Affect Your Chapter 13
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. Just because you aren't getting calls from bill collectors doesn't mean you're completely out of hot water. You have to remember a few rules throughout your repayment plan. Report any change in income you may have during your chapter 13 immediately. This is because your Chapter 13 repayment plan is created on the basis of several factors, and one of those obviously is your ability to repay your debt based on your 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 work both ways, however, if your income does increase you must report it. Generally this is referred to as the best efforts test. What this means is that you must use your best efforts to repay creditors should 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. It's important to have an experienced, qualified attorney when considering all these factors.
If you fail to report an income change the consequences can be incredibly serious. An immediate consequence of this is that you might 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. Not receiving the benefits of bankruptcy that you fought so hard for would be incredibly frustrating, and a risk that isn't worth taking.
The worst part of failing to report an income increase may not even be a discharge. 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.
About the Author
Missouri Bankruptcy attorney James Brown has been working to relieve the debt of hard-working American families for over 15 years. He has dedicated his career to educating consumers about options for debt relief and has released 5 publications, including, "Get Out of Debt: Secrets Your Creditors Don't Want You to Know." You can request a free copy by visiting his website at http://www.CastleLaw.net .
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