Chapter 13 Plan Payments And Increases In Debtor's Income

Most people are optimistic about their future including most of my clients who file Chapter 13 bankruptcy. People believe, or hope, that bankruptcy’s protection will lead them to increase their future salary or business profits. A common question is whether a Chapter 13 debtor’s increased future income will make their Chapter 13 plan payment increase. My clients often tell me that there is no incentive for them to seek better employment or work harder at their business if all the increased income goes to the Chapter 13 trustee.

Creditors and the Trustee’s office have a different view of a debtor’s future success. The law requires Chapter 13 debtors to pay all their disposable income to their Chapter 13 plan and their creditors. As a debtor is able to pay more of his debts he should be required to do so through increased plan payments. Chapter 13 debtors are required to submit their annual tax returns during the term of their plan so that the trustee can monitor their income.

In practice, the Chapter 13 trustee applies a common sense approach to changes in debtor’s income over the course of their repayment plan. Increases in monthly income of $500 or less ($6,000 annualized) typically will not cause an increase in the debtor’s plan payment level. Also, a debtor reporting more substantial increases in income has the opportunity to show evidence of offsetting increases in necessary expenses.

Debtors who honestly report changes in income and expenses will be treated fairly in Chapter 13 bankruptcy.