Significant income increase during my Chapter 13

[huffydogg]

I am 1 1/2 years into my 3 year chapter 13. I am currently paying only 1%, which is $100 a month. As of August 2011, my income increased more than 10%, and recently I notified my attorney, and he gave me 3 scenarios of what can happen. 1) I can modify my plan and submit it to the trustee. 2) I can wait till the trustee finds out of my income increase, and the trustee will modify my plan. 3) Trustee does not do anything, can care less. My attorney mentioned that if I modify the plan, my payment will be less than if the trustee modified the plan for me.

Since I am half ways into my plan, I feel like holding back on modifying my plan. I am hoping that the trustee will care less about my income increase, but I know it is a gamble.

What should I do? Has anyone had an income increase while in a chapter 13? Please advise. Thanks

[angel7821]

I have had an increase also in my income. I called my attorney in November 2011 to notify him of this and he said wait to hear from the trustee. I am in a different state than you so yours could be different. I just had my income taxes done and need to send in my tax return in the next 6 weeks to the trustee so I will see what happens then. My increase was only 4 percent though so I am really hoping my payment wont go up. Sorry I can't be of more help to you for an answer. But I wish you the best of luck for no payment increase.

[out4good3]

Is it customary for the trustee to ask for income taxes?

[andy158]

Is it customary for the trustee to ask for income taxes?

Most all require a copy of the return. Not all require you submit the refunds.

Our plan requires to submit any refund amount over $1,500.

[andy158]

What should I do? Has anyone had an income increase while in a chapter 13? Please advise. Thanks

Our income increased 7% for our 2010 tax year, but our actual net income dropped 3%. We expect the same for this tax year. My health insurance premium through payroll deduction took a major jump as well as property taxes.

If your income increases to the point where it can't be absorbed through normal living expense increases (i.e. insurance increases, utility increases, real estate tax increased, etc.) I would let your attorney decide. They know the trustee better than you. A 10%+ increase would be up for customary consideration unless you are in a 100% payback.

[jange]

Is it customary for the trustee to ask for income taxes?

It really depends on the trustee. Some do, mine does not.

[Flamingo]

Is it customary for the trustee to ask for income taxes?

From what I understand and have read, under the new BK law passed in 10/05, the trustee is required to collect copies of filed tax returns each year. As in all things, check with one's attorney as to what to do in your particular situation.

[Flamingo]

I am 1 1/2 years into my 3 year chapter 13. I am currently paying only 1%, which is $100 a month. As of August 2011, my income increased more than 10%, and recently I notified my attorney, and he gave me 3 scenarios of what can happen. 1) I can modify my plan and submit it to the trustee. 2) I can wait till the trustee finds out of my income increase, and the trustee will modify my plan. 3) Trustee does not do anything, can care less. My attorney mentioned that if I modify the plan, my payment will be less than if the trustee modified the plan for me.

Since I am half ways into my plan, I feel like holding back on modifying my plan. I am hoping that the trustee will care less about my income increase, but I know it is a gamble.

What should I do? Has anyone had an income increase while in a chapter 13? Please advise. Thanks

Your attorney should advise you on this....your Plan is based on your financial status on the day you file BK. During your Plan years, if your income increases your disposable income increases therefore creating more funds that can be distributed to creditors. Some attorneys advise their clients that when they receive a raise, bonus, hit the lottery, receive an inheritance, etc. to contact them right away to go over the situation. If you leave this alone and then the Trustee finds out down the road that your income increased, I don't know what problems can come out of that if your attorney advised you not to submit a modification. I would thoroughly go over this with your attorney and to avoid any possible future problems as to your Plan or with the Trustee, modify it accordingly. It is always good to play it safe in a Chapter 13.

[catleg]

You might want to prepare a pro-forma (practice) budget to see just how much your income increases after taxes and expenses.
That way you have something to show your lawyer and/or trustee.
If you are still below median even with the increase I'd guess they won't bother with you, unless it's an eye popping increase.
Also when did the increase take effect?
If it doesn't show up until next years taxes I'd lie low.

[chicagoed195]

I am guessing that every district is different, but bankruptcy law is very clear.

The debtor never has an obligation to file a motion to amend a plan. The debtor's obligations to inform the trustee(usually through their attorney) are generally spelled out in the confimation of the plan. Most plans require the submission of the debtor's tax returns on an annual basis and usually this is the mechanism by which the trustee would file a motion for a plan modification. If the trustee proposes a plan modification, he may propose a payment based on the increase in income, but the debtor would have the ability to challenge that based on the totality of the situation. I don't know about anyone else, but virtually all of my standard monthly expenses have increased since I filed two years ago.

I agree with Catleg. The trustee will not see the tax return until sometime in April. If they are busy and your plan has been on autopilot, there is a good chance they will just put the return in your file and nothing will change. If they do propose a modification, you have a chance to defend and the courts usually don't allow a retroactive modification - so even if the trustee is successful in an action to modify it will usually only be for future payments.

[huffydogg]

Thanks to everyone for their advise. I think I will wait and see whether or not the trustee asks for a modified plan. Hopefully, my trustee will not ask for one, everything here has gotten much more expensive. Gas here is $4 a gallon, groceries are very expensive, everytime I go to the market I end up paying at least $100, and my daughter started private high school this year that costs $13,000 per year. I know that my daughter's school is expensive, but the public school system here in LA is not so great.

[TrainWreak]

Well here's my story:
I have 5 months left in my 36 month plan. In 2011 I needed a new roof $4200 and vehicle $5650 because my old work van died. I sold the van for salvage for $125. My older 1995 car is now my work vehicle. A 1997 Mercury is my "new" car.
I have put another $500 in the Mercury, all parts since I do my own mechanical work. Also my expenses and of course taxes have went up.
In 2011 I took a temp job with lots of overtime and made over $5000. I was hired full time and made another $5000. I was working my small business at the same time and at my age with a bad shoulder I went back to working just my business as soon as I had enough for the roof and the car. I actually quit the factory job sooner than I wanted too but I was in too much pain. In November 2011 I asked for a rather large increase in pay (30% of gross business receipts) at one of my business accounts and got it! I am still well under the median.
By the time my taxes are ready to send to the trustee I will only have three or four payments left. My lawyer said this trustee "is pretty laid back". I have not told my lawyer yet but maybe I should email him or send a letter before I send the trustee my tax info.
What are your thoughts on this?

[kornellred]

If you are required to submit federal income tax returns to the trustee on an annual basis, it will be "so ordered" in your Chapter 13 Plan Confirmation document. The trustee has no way of knowing if your income increases otherwise. I am in the last seven months of a 5 year Chapter 13 plan, and I have never been required to send in a tax return. My income increased significantly in years 2 and 3. However, I became disabled in year 4 and my income dropped by more than 40%. I wonder what the trustee would think of that......

[Flamingo]

Thanks to everyone for their advise. I think I will wait and see whether or not the trustee asks for a modified plan. Hopefully, my trustee will not ask for one, everything here has gotten much more expensive. Gas here is $4 a gallon, groceries are very expensive, everytime I go to the market I end up paying at least $100, and my daughter started private high school this year that costs $13,000 per year. I know that my daughter's school is expensive, but the public school system here in LA is not so great.

As one going through a Chapter 13 and completing it successfully, ask your attorney specifically when you should advise him of any change in income (i.e., increase over or under a certain percentage). Most people in a Chapter 13 will call their attorney in a second ifi their income decreases but no one wants to report any increase hoping it will get ignored. Play it safe in your 13 and ask your attorney and advise what you should or should not do as to your plan as to reporting income increases, bonuses, etc. We reported a bonus, a distribution of about $4,000 from past sick/vacation days owned from a previous job where the employer went bannkrupt and the distribution was received by us, and we had to report an inheritance. The only thing touched by the trustee was the inheritance. The rest we got to keep but we reported it. We successfully completed our plan and are doing fine 5 years later. Play it safe, be prudent, and be open and honest with your attorney - best advice I can give anyone in a Chapter 13.

[Billssuck]

We aren't required to send in our taxes but our confirmation order says to notify the Trustee when our income increases by 10 percent. We are only three months out from finishing our payments and I just did our taxes for the past year. We we're just under the 10 percent but for us our income varies from month to month for both me and my husband's jobs so it's not known until the end of the year what the result is percentage wise. The other two years were very close to the amount when we filed so it was not an issue.