The $19,000 dollar question

[zilk]

I have a few questions. Thanks in advanced

A person I know has filed Bankruptcy, chapter 13 in Il. They have made an extra $19,000 in one month in side jobs. Technically, according to the law, are they supposed to report this income to the court? Are people who file for chapter 13 required to sign anything that requires them to report large changes in income like this.

[blindsided]

What you're discussing -- not disclosing significant income -- is bankruptcy fraud.

[justbroke]

The technical answer is this.

If you're in a 100% Plan, you probably don't need to disclose it.

If you're not in a 100% Plan, you have submitted your disposable monthly income to the supervision and control of the U.S. Trustee. That means... anything extra, goes to the unsecured creditors until you pay them 100% (if not already in a 100% Plan).

So... what would happen if you didn't disclose it?

1. If a W-2 is issued at year's end, this will be repoted to IRS and end up on your 1040 tax return
2. Trustee gets a coyp of your 1040 tax return and sees lots more money earned
3. Trustee increased your Plan payment based on the additional $19K in annual income (increasing your payment about $1.8K/mnoth)
4. Trustee increases your Plan payment to recoup the additional $19K you earned in that particular year. (Not all Trustees do retroactive recovery.)
5. Now you can't afford to pay the Plan payment
6. Your case is dismissed for non-payment

Well, that's one scenario. I don't think it's technically Bankruptcy fraud. However, if you fail to report it to the IRS via your tax return, you'll be in trouble with the IRS and the Trustee if they ever find out.

I looked at my Order of Confirmation, and there's nothing ordering me that I need to report any "extra" income. However, I must submit tax returns annually by April 30th. The Trustee will audit my tax return and determine if there is a significant change in income, to determine if they'll motion to modify the confirmed plan. Usually, they don't bother if it's less than 10% of your annual salary as reported in your petition.

According to my B22C, I make over $160K/year (not really, it had to do with my rental income)... so $15K or less wouldn't raise the Trustee's eyebrow. however, $19K would be different... especially if you earn a lot less than $190K a year.

Of course, your mileage will vary in different Districts and Trustees.