Pay Increase

[cz3ch]

This month my employer gave me a pay increase from $48K/annual to $63K/annual. I'm reporting this to my bk attorney to see what needs to happen regarding my chapter 13 payment and if it needs to be adjusted.

Here are my questions.

1.) I have claims of approximately 17K and have been paying $100/mo on a 5 year plan based on my DMI. Payments have been made on time and I've actually been able to make extra payments here and there in the beginning. Been on plan since 2/2013. Considering my claim amount and my pay increase, what would be my worst case scenario as far as a payment modification? Of course I don't mind paying more since I'm making more, but I'd also like to be able to put some money away for savings/rainy day.

2.) My pay increase was effective 2 weeks ago (it was a surprise to me) so will the trustee look for an extra payment to cover that pay period where I made more money?

3.) How does the process work with regards to pay increases? I assume the attorney notifies the trustee then the trustee motions to modify the plan? If the payment amount is crazy high do we have the opportunity to negotiate or dismiss the case entirely.

Ultimately I want to pay my debt as I'm supposed to but if the trustee takes all of my DMI then having a pay increase is pointless in a way since I won't be able to put away money for savings.

Thanks for your help in advanced, guys!

[LadyInTheRed]

Congratulations on the raise!

If you are required to report the increase in income, your DMI will be recalculated based on your new income and current expenses. This may increase your payment. Your gross income increase is $1,250 per month, so an increased plan payment could be substantial. But, it shouldn't equal the increase in your gross salary because your taxes will also increase and you probably have other increases in expenses. You will not be able to include savings as an expense. But, if you initially had to reduce your expenses to propose a feasible plan, you may be able to gain some wiggle room that will allow you to save if you stay on your current budget, but use more realistic expenses for the modified plan. If your plan has to be modified, look over your Schedule J and let your attorney know if any of your expenses are higher than it shows.

I don't think they can retroactively increase your plan payment as long as you report an increase in income promptly, assuming you are even required to report it.

A plan is always negotiable between the debtor and the trustee. The actual process depends on local practices. If you and the trustee disagree as to what the new plan payment should be, the judge would make the final decision. If you have a decent attorney, there is no reason your plan payment should be crazy high. It should be at least as livable as your current plan payment.

You can stop making your plan payments anytime you want and your case will eventually be dismissed. Unless you have a lousy attorney or an unreasonable trustee AND judge, you aren't likely to end up in a situation where it makes sense to put yourself back at the mercy of your creditors and their late fees and accrued interest.

Even if the trustee takes all of your increase in DMI, a pay increase is not pointless. You will still be earning $15K more per year after you complete your plan.

Why have you made extra plan payments? When you have extra money, you should save it unless there is some reason you are required to pay it to the trustee (like a tax refund). Unless (1) you have enough non-exempt assets to require you to pay 100% of all claims or (2) you are an under the median filer, with a 36 month commitment period, but are in a 60 month plan to give you enough time to pay off arrears on secured debt or to pay off non-exempt assets, you should not be making any payments that are not required by your plan. Even if one of those things are true, you still probably shouldn't make extra payments because if something happens that causes you to convert to a 7 or let your case get dismissed, you will have thrown away money you didn't need to.

[cz3ch]

Hi LITR, thanks for chiming in.

I guess what I'm trying to figure out is what sort of plan payment to expect. Since I only have 17K in claims, that spread out over 5 years is approximately $283/month which is an increase from the $100/month I'm paying now. With the payment at $283/month wouldn't that put me at the 100% plan mark? I'm honestly not sure if we are going to have to report the extra income, hell my trustee doesn't even require Tax Returns. I've calculated my net take home pay after taxes, health insurance, etc and it's about an extra $300/pay period (twice a month). So that's approximately $600 a month in DMI without adjusting my expenses (which have increased somewhat since filing).

My attorney said there shouldn't be any retroactive payments and there's no "deadline" for reporting the increase in income. Although I reported it as soon as my first paycheck hit with the increase.

My attorney(s) are pretty top notch and have made the process easy and affordable for me. They said they will crunch the numbers and look at my expenses to make the plan payment manageable, so that's good news. They said this whole process may take a while.

If I wanted the case to dismiss how would I stop the plan payments? My employer is under an order to pay each month. Would I just tell my employer to stop making payments? Or would I have to get my attorney involved to let the case drop?

I see what you're saying about the pay increase not being pointless. I was just hoping to build a savings which I've not been able to do with my current plan. Things are really tight.

In regards to the extra payments. I had made a few of them when I first started, prior to my employer withholding the payment from my paycheck. I get your point about the extra payments and I no longer send anything extra, instead I just let my employer take care of it. You bring up a good point especially if I let my case dismiss or convert to a 7. I doubt I'll convert to a 7 since I make too much money and I originally converted from a 7 to a 13 due to being slightly over the means test and not being able to get the numbers right.

In the end, I'm just hoping the trustee doesn't take all of my DMI. If he does and it's more than the $283 I calculated, will that shorten my plan time since that would mean I'm paying more than 100%? Sorry if my question is confusing, even after 2 years in BK the process still puzzles me.

[LadyInTheRed]

You can't simply stop making plan payments if a wage order is in place. I did not think that part through. Sorry! You can motion to dismiss your case, but since you converted from a Chap 7, you have to have good cause. I don't know what a good cause would be.

Your new plan payment will either be whatever it takes to pay off all debt, your trustee fees and whatever attorney fees are included in your plan within the time remaining in your plan, or it will be equal to your DMI, but the plan will be shortened to however long it takes to pay 100% of claims, plus your attorney fees and trustee fees. You will not pay more than it takes to pay those items. So, if your payment is over the $283 you calculated and your calculation included attorney and trustee fees, your plan will end early. Even if the increase in plan payment is so high that you won't get to see any of your pay increase, it will be better than dismissing your case. If your case is dismissed, your creditors will add on all of the interest that accrued since your filing date and it will cost much more to pay off your debt than it will if you continue in your Chap 13.

It sounds like you are in good hands with your attorney. If the plan payment seems to high and it shortens your plan, you can ask your attorney if you can lower the payment for a longer period of time. But, as long as you don't have to cut your budget from where it is now, if I were you, I would accept a higher payment to get out early.

[cz3ch]

You can't simply stop making plan payments if a wage order is in place. I did not think that part through. Sorry! You can motion to dismiss your case, but since you converted from a Chap 7, you have to have good cause. I don't know what a good cause would be.

Your new plan payment will either be whatever it takes to pay off all debt, your trustee fees and whatever attorney fees are included in your plan within the time remaining in your plan, or it will be equal to your DMI, but the plan will be shortened to however long it takes to pay 100% of claims, plus your attorney fees and trustee fees. You will not pay more than it takes to pay those items. So, if your payment is over the $283 you calculated and your calculation included attorney and trustee fees, your plan will end early. Even if the increase in plan payment is so high that you won't get to see any of your pay increase, it will be better than dismissing your case. If your case is dismissed, your creditors will add on all of the interest that accrued since your filing date and it will cost much more to pay off your debt than it will if you continue in your Chap 13.

It sounds like you are in good hands with your attorney. If the plan payment seems to high and it shortens your plan, you can ask your attorney if you can lower the payment for a longer period of time. But, as long as you don't have to cut your budget from where it is now, if I were you, I would accept a higher payment to get out early.

Sorry, I forgot to mention that I converted from a 7 to a 13. Yes, I really can't think of a good reason to dismiss that the court would approve. Looks like I'm stuck in the plan for now.

I guess I have to resign to the fact that my payment is going up one way or another. If the trustee takes all my DMI then I will be out of BK early. If he maxes out the payment over the remaining 3 years/4 months I'll definitely be able to save up some money and will see my pay increase which will be nice.

Yes, my attorneys are very good. I'm hoping to hear from them sometime this week with the proposed plan modification so I know what I'm up against. Either way, I'll keep my head up and try to remember why I did all of this in the first place. To stop the creditors from coming after me and to create a new financial life.

I'll definitely consider your advice regarding accepting the higher payment and getting out early. At this point I just want this to be over with. If I had the 17K saved up, I'd just pay it off and get a discharge. Wishful thinking, I guess.

[out4good3]

I am very interested in seeing how this turns out.

[cz3ch]

I am very interested in seeing how this turns out.

So am I.

I just heard back from my attorneys yesterday afternoon. They have crunched the numbers, adjusted my expenses slightly, and have come up with a plan payment of $250/mo which is pretty much my DMI after taxes, deductions, and expenses. They filed the motion to modify, set a hearing (hopefully I don't have to go, I hate court), and filed a proposed wage order for my employer. They said to go ahead and start making the extra $150/month payment starting next month until my wage order kicks in and my employer starts deducting.

I asked them about the trustee objecting to the plan. They said that the plan is very reasonable and I'm now paying back more money to my creditors and at 70% it should have no problems getting signed off on. I was also told that in my district the judge is very understanding of debtors wanting to save money for a nest egg and supports that. From what I'm told, I have a very good judge presiding over my case. Apparently my trustee is pretty easy going too and doesn't really require much (no tax returns/etc) except that my payments are made.

So I'm going to start the new payment next pay period and will see what happens after 10/1/14 when the hearing is set. My attorneys told me that most likely I won't need to show up to the hearing but will let me know if I'm required to be there. I get really nervous in front of the court/judge. During my 341 meeting my heart nearly jumped out of my chest lol.

I'll keep everyone posted, but so far my attorneys have done a good job to keep my plan affordable and allow me to save up some money. Now to get the judge to sign off on it and call it a day

[dmc-2008]

I always envy those who keep returns and don't have to submit taxes!

[out4good3]

I am one of those......

Flying quietly under radar.....

I'll submit a full report in 24 months.

[kornellred]

In all likelihood, your DMI will be recalculated to what it actually is presently (after the raise), the result multiplied by the number of months in your plan, and the total amount will then be reduced by the amount of money you have already paid into the plan. If the resulting amount is more than the total amount of your indebtedness (plus the trustee's fees and any attorney fees), the remaining result will be divided by the number of months left in your plan, and that will be your new plan payment. If not - then your whole new DMI amount will be your plan payment for the duration.

After reading the OP's additional response as to what is currently happening, I would modify my analysis above slightly, but that would be too much trouble. Good BK attorneys can manipulate DMI figures legitimately, so there is "wiggle room".

[cz3ch]

Mod Approved

Good news. The trustee did not object to my plan modification and the judge signed off on the modification today. Which means I don't have to go to court or do anything else but pay $250/month. This will leave me with at least $500/mo to begin a nest egg. I apparently have very good lawyers and a lenient judge/trustee. I was sure I would pay way more than what I am. Oh well, life is good. 3 more years before discharge, I can make it

[LadyInTheRed]

Excellent!

[dmc-2008]

That's great!