How to Report Income Changes to the Chapter 13 Trustee

By Tom Streissguth

By petitioning for a Chapter 13 bankruptcy, you are promising you'll try to clear at least a portion of your outstanding debts. Chapter 13 allows you to keep assets you would have to surrender in a Chapter 7 case; rather than seizing your non-exempt goods, the bankruptcy trustee oversees a repayment plan. The plan is based on your income, so keeping the trustee current with any changes to that income is essential.

Debtor and Trustee

The trustee who administers your Chapter 13 plan is responsible for setting payments that match your income level and ability to pay. In turn, you as the debtor must keep the trustee informed about any changes to your income. If you lose or change your job, receive a substantial raise, or have a cut in your hours or wages, you must report it to the trustee while the plan is in effect.

Threshold Changes

The repayment plan and bankruptcy documents will give you specific instructions on the circumstances you need to report and how to do so. It's common for a trustee to require a report if your income changes by 10 percent (up or down) from the income you reported on Schedule I when filing the case. You report by mailing a letter along with a supporting document, such as a pay stub, to the trustee's business address.

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Request for Plan Change

If you face steep expenses or lose income while dealing with a repayment plan, you can request a modification of the plan by the bankruptcy court. If you are facing a one-time expense, such as the repair of an appliance or car, this change can be temporary. The priority is to stay current on secured loans; if you default, the creditors can seize your property or foreclose on your home. While you are covered by a Chapter 13 repayment plan, you need written permission from the trustee to borrow any money.

Taxes and Windfalls

Chapter 13 trustees also require copies of your tax returns, which they examine for evidence that your income has changed. If you are due a tax refund, then the trustee can divert that money to pay your creditors. If you receive any kind of a windfall, such as a salary bonus or inheritance, the trustee may require higher monthly payments or the repayment of your debts in full.

Selling Property

While the repayment plan is in effect, you need permission from the bankruptcy court to sell any property, secured or unsecured. The court and the trustee reserve the right to seize the proceeds of a sale to satisfy your creditors. If you fail to keep the trustee current on a sale of property or any other changes in your financial situation, the bankruptcy can be dismissed -- meaning you're back where you started and your debts are again fully collectible.

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Can One Convert From Chapter 7 to 13 Bankruptcy?

If your debts are running high and your income isn't enough to meet your expenses, you can petition for bankruptcy protection. In a chapter 7 bankruptcy case, a court-appointed trustee seizes your nonexempt assets to pay your creditors. A chapter 13 bankruptcy allows you to keep your assets, but you partially repay your creditors through a series of monthly payments over a specified period of time. You can convert from one type of bankruptcy case to the other, depending on the circumstances.

Does Chapter 7 Cover Student Loans?

If you are overwhelmed by student loan debt, you may consider filing for bankruptcy. There are two different types of student loans: private and federal loans. Federal student loans are backed by the federal government and offer a fixed interest rate. Banks and other financials institutions issue private loans, and interest rates on these loans are typically much higher than federal loans. While filing for bankruptcy may seem like a good option, it can be very difficult to discharge your student loan debt in bankruptcy and will require a showing that the student loan constitutes an undue burden.

What Happens When Chapter 13 Is Dismissed?

Chapter 13 bankruptcy allows you to create a three- to five-year repayment plan to catch up on your debts. If your case is dismissed, either by you or the bankruptcy court, prior to completion of the repayment plan, you will not receive a bankruptcy discharge, which erases the debts covered by your bankruptcy case and makes them unenforceable by your creditors.

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