Raise and Annual Bonus

[BKKimOK]

I had my meeting of creditors earlier this month and my confirmation hearing is supposed to be the first week in August. I’m pretty sure my proposed payment is going to go up, but I don’t know yet. My question, I got a raise (10%) that I didn’t know about when I filed. I currently work a 2nd job, which was added to my income, so since I got the raise I just want to quit my second job and it will equal out to about the same, I think.

Also, I have an annual bonus coming up. I’ve disclosed all this to my lawyer and of course will to the trustee, but I’m curious how often a trustee lets you keep your income tax refund or bonus?

[justbroke]

You will likely not be able to keep a bonus.

All, a portion, or none of the refund from a tax return could be possible. This depends on many factors such as local rules (district-specific), whether your attorney calculates your DMI without the refund already added back to your income, and/or some specific "refundable" tax credits that are excluded (EITC, Child Tax Credit, and maybe some others).

Now, if you're in a 100% plan, then you'd have a better argument for keeping all of any potential refund and/or bonus. If you're in less than a 100% plan you are pledging "all disposable income" to go to the plan and to try to pay back the unsecured creditors.

[BKKimOK]

I am not in a 100% plan. I’m ready to turn it over, just hoping to keep some at least, but I completely understand what I signed up for and am ready. Thank you!

[eap82]

BKKimOK I'm not sure about bonuses because I don't have that issue but I did ask my attorney about raises. It's been mentioned on here before that some attorneys go after them and some don't, some have a threshold. I asked her outright if my trustee has been known to seek a modification and she said yes, my trustee will go after anything over 15% percent or so. I'm keeping my receipts so that if I happen to get a raise (not likely) I can show that inflation has influenced my budget and I get a fair shake. My attorney actually pointed out that my budget (groceries and gas especially) has definitely changed since my plan was confirmed and I'm not one of those that has much wiggle room.

I was able to keep part of my income tax return that was from my stimulus checks and had to turn over the rest. That was my first year in my plan. This last tax season I made sure my withholding was correct so I actually owed $200. I was thrilled. I want that money each month, not a lump sum at the end of the year that the trustee takes anyway. I used the IRS withholding calculator on their site regularly and make sure I update my withholding based on the recommendations they give. This worked perfectly for me last year. I've had some changes to my income this tax year so hopefully it works the same.

[BKKimOK]

BKKimOK I'm not sure about bonuses because I don't have that issue but I did ask my attorney about raises. It's been mentioned on here before that some attorneys go after them and some don't, some have a threshold. I asked her outright if my trustee has been known to seek a modification and she said yes, my trustee will go after anything over 15% percent or so. I'm keeping my receipts so that if I happen to get a raise (not likely) I can show that inflation has influenced my budget and I get a fair shake. My attorney actually pointed out that my budget (groceries and gas especially) has definitely changed since my plan was confirmed and I'm not one of those that has much wiggle room.

I was able to keep part of my income tax return that was from my stimulus checks and had to turn over the rest. That was my first year in my plan. This last tax season I made sure my withholding was correct so I actually owed $200. I was thrilled. I want that money each month, not a lump sum at the end of the year that the trustee takes anyway. I used the IRS withholding calculator on their site regularly and make sure I update my withholding based on the recommendations they give. This worked perfectly for me last year. I've had some changes to my income this tax year so hopefully it works the same.

That’s actually really great information and something I hadn’t thought about regarding my tax situation. I have always claimed 0 to get a refund at the end of the year, but I can change that to claiming myself and get a bit more each month and not have to give it over to the trustee.

As for my raise, my lawyer said generally anything at or below 10% they don’t care about and mine raise was exactly 10%, so I’m hopeful that won’t be an issue or a need to change anything.

Im also quitting my 2nd job, so I think the raise will end up being nearly the exact amount extra monthly (maybe a little less) than it was before.

I hate the idea of handing over my annual bonus but I will gladly and just try not to rock the boat for the next 5 years.

Thank you!

[shipo]

Definitely bump your W-4 to reduce your exposure for coughing up a large chunk (or all) of your tac refund. I ran into that during my third year of my Chapter 13; the tax code changed and there was confusion on how it would impact my taxes. In the end I went conservative and had to pay the price; I ended up with something like a $5,000 refund, all but the first $1,250 went to the Trustee.

One thing I tried during my bankruptcy was to bump my 401K witholdings each year to effectively match any raises I received. Looking back on it, all five of my W-2 "Wages" columns showed an amount plus or minus about $2,000 of the W-2 from the year I filed.

[BKKimOK]

Definitely bump your W-4 to reduce your exposure for coughing up a large chunk (or all) of your tac refund. I ran into that during my third year of my Chapter 13; the tax code changed and there was confusion on how it would impact my taxes. In the end I went conservative and had to pay the price; I ended up with something like a $5,000 refund, all but the first $1,250 went to the Trustee.

One thing I tried during my bankruptcy was to bump my 401K witholdings each year to effectively match any raises I received. Looking back on it, all five of my W-2 "Wages" columns showed an amount plus or minus about $2,000 of the W-2 from the year I filed.

I’m going to definitely adjust my W4 and claim 1 instead of zero. I don’t generally get a huge refund, usually 1,200 or less, but I’ll take the chance of having to pay a couple hundred and get a little extra monthly.

I don’t have a 401K 😅…I definitely need to start contributing to one, but I suppose I will wait another 5 years before I start.

Thank you for your insight and advice!

[eap82]

I’m going to definitely adjust my W4 and claim 1 instead of zero. I don’t generally get a huge refund, usually 1,200 or less, but I’ll take the chance of having to pay a couple hundred and get a little extra monthly.

I don’t have a 401K 😅…I definitely need to start contributing to one, but I suppose I will wait another 5 years before I start.

Thank you for your insight and advice!

The new W4 doesn’t work that way anymore with exemptions such as claiming 1. I recommend going to the IRS withholding calculator because at the end it gives you instructions on how to fill it out. It’s confusing now in my opinion.

[Carmella]

We were in 100% payback, but if we came into money I called the attorney just to ask and let them beware. I didn't want to make it look like we were hiding anything. We didn't get bonuses, but we did get a few random checks. My husband's sister who we never talk to or see had signed up for a class action for asbestos claims since their dad had lung cancer. We ended up receiving two modest checks.

I liked to call even if I was 99.9% sure of the answer just to be transparent about it.

[flashoflight]

I'm in a 1% plan. The people in the 100% plan in my district can basically do whatever they want with bonuses, tax refunds, and second jobs.

Prior to the agreement between my lawyer and the trustee on the confirmed plan, I had to submit paystubs every month and pray that I don't get a raise prior to confirmation. After the informal agreement, I stopped submitting paystubs and waited for the actual confirmation hearing date to pass and the judge signing the order to confirm.

My lawyer has been practicing BK law for 30 years and never, ever had a single client get a trustee initiated plan modification due to a raise at the same employer although we are required to submit tax returns and tax refunds over $500/year. I had a larger raise greater than 10% and my lawyer and the trustee did not care. All I have to make sure each year is that I don't end up with a net tax refund greater than $500.

So it's district specific.

[Carmella]

flashoflight your plan/district sounds very reasonable to let people keep their raises and small tax refunds.

I basically call the attorney for the sake of CYA!

[IHaveRegrets]

flashoflight your plan/district sounds very reasonable to let people keep their raises and small tax refunds.

I basically call the attorney for the sake of CYA!

I do the same. My employer is looking at giving me a raise, and thankfully, since I work for a small company, they're trying to work it to my best advantage, given they're aware of the CH13.

Nothing underhanded, just trying to be strategic and looking at possibilities of non-salary intangible type options for my benefits package along with money, but it already triggered an email to my lawyer's office for some advice/pointers and steps I could take for strategy's sake.

Besides, my lawyer told me in direct terms that the sooner I contacted them when a change might be coming or a problem comes up related to money, the better off I will be as it gives my lawyer more time to work.

[flashoflight]

Besides, my lawyer told me in direct terms that the sooner I contacted them when a change might be coming or a problem comes up related to money, the better off I will be as it gives my lawyer more time to work.

My lawyer told me the same outside of being a few days late with my plan payment. But I've learned sometimes it is better for you to work it out yourself. Poking the bear (trustee) while he is sleeping isn't a good thing. For example, it is better to save up for house repairs or a car rather than come into court with a motion to incur debt or a motion to retain tax refund.

[BKKimOK]

Thank you for all the information and advice.

My confirmation hearing next month is one day before my creditors deadline to submit a proof of claim, so my lawyer said my confirmation will at least get extended until Sept due to that. He said for now, save the bonus and maybe it can be used as leverage to keep my payments as low as possible or I might be able to keep it; it’s all unknown right now, which I know is part of this process but it’s got me on edge.

Im trying to just keep my head down, make my payments and try not to annoy my lawyer with questions he has no answers for at this time. 😅😂