How Does Extra Income Work in a Chapter 13 Bankruptcy?

Filing for bankruptcy is a challenging experience, especially when you don’t have the means to pay off a substantial debt. There’s so many things ton consider such as, “Should I file Chapter 7 or Chapter 13 bankruptcy?” or “what is the cost of filing bankruptcy?”

How Does Extra Income Work in a Chapter 13 Bankruptcy?
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Once you fall behind on your payments, it can be hard to catch back up. You may even start being pursued by a debt collector. This may be the point at which time you consider filing for bankruptcy.  But what if you can generate an extra income? If that’s the case, then you would want to know how this additional amount will affect your Chapter 13 bankruptcy plan. Therefore, to help you, we will answer it in this guide.

In chapter 13, bankruptcy, your salary is the only source of income to pay the debt. That is why a bankruptcy payment plan is established after considering your income, expense, and total debt. So, any change in the income source will affect your bankruptcy plan.

Let’s find out how different scenarios may affect it.

What Happens to My Tax Refunds in a Chapter 13 Bankruptcy Plan?

It rarely happens when you overpay your tax. So, when you do, the government returns the extra money. Your refund tax counts as your asset and is considered an extra income. According to the Chapter 13 bankruptcy payment plans, you need to pay it to your trustee. Check the IRS details on Chapter 13 payments. The trustee will distribute the amount to your creditors, thus lowering the remaining debt.

However, you can get exemptions for paying your tax refunds, but it depends on your region and state's laws and regulations. If your state allows you the exemption under certain conditions.you can hire a writer to avail this opportunity or consult any legal professional to get this opportunity. Otherwise, you will need to return up to 70% of your tax refund to your trustee. 

What Should I Do If I Receive a Bonus During My Chapter 13 Case?

If you get any bonus, you must inform your trustee immediately. If it is just a small amount, you may get a chance to keep it. But if it is a significant bonus, the court might use it to pay off the debt.

Moreover, in the case of regular bonuses, the payment plan might change. If you regularly get these bonus packages, it is time to consult your attorney. It adds to the overall income, which ultimately increases net income and your Chapter 13 bankruptcy payment.

 However, if you want to keep the bonuses, you can consult an attorney. Describe your situation and the bonuses you get with a salary. After evaluating your unique situation, they may recommend an alternative solution to keep these bonuses to yourself.

What Would Have Been The Qualification and Cost of Chapter 7 bankruptcy?

One thing to consider is whether you could have qualified for Chapter 7 bankruptcy and whether that would have been helpful to understand before doing a Chapter 13 bankruptcy. For this, you could take a should I file bankruptcy quiz that can help you go through cost and qualification.

What about “Side Hustle” Income or Part-time Income?

While filing a Chapter 13 bankruptcy plan, you must disclose all your income sources. It includes all the “Side Hustle” and part-time jobs too. The court will set your payment plan according to your monthly payment capabilities.

Talk to your lawyer and trustee about them to avoid any complications. Otherwise, you may get heavily fined for not disclosing your income streams.

If you want to work part-time temporarily, discuss the matter with your attorney. The part-time income will help you fulfil other necessities, and informing your lawyer can save you from an increased plan.

What Happens If I Get a Raise During Chapter 13?

Getting a raise while paying the Chapter 13 bankruptcy plan can be a dilemma. As your monthly income increases, your payment plan will increase. When you get a raise, you need to inform your trustee as soon as possible. But, remember to contact your Chapter 13 lawyer first. They will review your case and estimate the possible effects of raise on your bankruptcy plan’s payment.

If your expenses have also increased with your earnings, the raise won’t affect your repayment plans. But if your expenses remain the same, and you get an increase in income, the Chapter 13 trustee is liable to increase the bankruptcy payment plan. Your attorney, in the latter situation, can minimize the total debt.

But this side hustle should be for a few months only, rather than be consistent earning to avoid additions in monthly debt payments.

Does My Spouse’s Income Count toward My Chapter 13 Plan Payment?

Yes! Chapter 13 bankruptcy counts your earnings and your whole household income and expenses to determine the plan. So, if your spouse is also earning through a job, plan payments will also include their salary.

Before filing for the plan, report to your Chapter 13 trustee about the spouse’s income so they can set your payments accordingly.

However, if you two are going through a separation, including your spouse's income isn't necessary. The above criteria only apply if both of your share the same household.

There is also an easier way. Instead of filing individually for debts, a couple can sign a joint bankruptcy. This option will help make the process seamless and save you from additional costs involved in individual bankruptcy filings.

Does the Chapter 13 Trustee Monitor My Income?

Usually, your income and spending are not meant to be monitored. But it depends on the Chapter 13 plan that you have filed. If your plan includes submitting monthly or annual income reports, you need to report them to your trustee. Your trustee can ask for the current report or status at any time.

Since trustees need to distribute your submitted debt to the creditors, they mostly monitor your income. They ensure you earn as stated in the plan and be a responsible citizen by regularly filing your tax returns. You may also need to submit your annual tax return copies to your trustee.

One of the common concerns is that your Chapter 13 bankruptcy could be dismissed due to some of these reasons and the debt collection agencies start pursuing you again. While you can use an 11 word phrase to stop debt collectors, you may prefer to just stick with the Chapter 13 bankruptcy.

How Do I Report Income Changes in a Chapter 13 Bankruptcy Case?

Since your income decides your Chapter 13 bankruptcy plan, you must report any change in it to your trustee or the court. The court will adjust or amend your plan according to the change. But, it will always be best to inform your attorney first so they can determine all the impacts on your plan.

Failing to report in time or attempting to hide any increase in income may result in the cancellation of your Chapter 13 bankruptcy plan. So, immediately talk to your lawyer, and report to the trustee or court as soon as possible about changes in income.

What's the best option for you?

Chapter 13 has helped many people to come out of their financial crises. Moreover, it is one of the best ways to solve the debt burden. Using the chapter 13 plan, you can pay off your debts with easy installments, which save you from plenty of hassles.

Contact us online for any suggestions, and we would be more than happy to help you get rid of your debt most efficiently. We will also provide insights on how you can avoid bankruptcy in the future.

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