Chapter 13 bankruptcy allows a debtor to benefit from protection against aggressive forms of debt collection such as foreclosure, repossession, and wage garnishment, while requiring him or her to repay a portion of his or her debt. The repayment amount is based on the financial assets available to the debtor along with the amount of secured and unsecured debts owed. When filing for bankruptcy relief, a monthly repayment amount is proposed and the bankruptcy trustee will decide whether that amount is appropriate or not. However, it is possible that over the course of the three to five-year repayment period, the amount will change. Knowing why a chapter 13 payment increase may occur will help you understand the process should it ever happen to you.
A Secured Debt is Paid Off
The chapter 13 repayment amount is largely influenced by the debts you have and the income you receive. Major changes to either factor could cause your payment to increase. If you own a home or a vehicle, paying it off means that you have more disposable income each month. At that point, the bankruptcy court may decide to increase your monthly payment obligation to complete your plan faster or pay off other creditors in your plan.
Additional Income is Received
Changing jobs is one of the most common reasons for a bankruptcy plan payment increase. Moving on to a higher-paying career or position usually means that the debtor’s income increases. Along with raises or promotions to higher paying jobs, the court may also view consistent overtime as a source of additional income. Any income increase that appears to be reccurring or consistent could lead to an increase in bankruptcy payments.
Support Payments End
Monthly support payments such as alimony and child support are taken into consideration when your debt-to-income ratio is determined. Depending on the age of your children or the time-frame outlined in your divorce decree, your period of making payments could end before your bankruptcy is discharged. When your monthly support obligations end, your trustee will determine a new repayment amount based on the increase of disposable income you now have.
Falling behind on your monthly chapter 13 payment could extend the life of your repayment term. Usually when this occurs, your trustee will file a motion to dismiss your case or have it converted to chapter 7. Instead of losing your bankruptcy protection or being forced to convert to a chapter that does not allow you to retain certain property, your attorney may be able to have your case reinstated by bringing the plan current. Either a lump sum to catch up on past due payments is required or your monthly payment is recalculated to include the past due amount.
Contact a Bankruptcy Attorney
If you are considering filing chapter 13 bankruptcy or having issues with an existing case, do not hesitate to reach out to a qualified bankruptcy attorney. The legal team at Resnick Law is here to answer your questions and provide you with the help you deserve. The decision to file bankruptcy is not one to make lightly, and we are dedicated to providing you with the high quality legal representation you need. Contact either of our two conveniently located offices today to schedule an initial consultation.
(image courtesy of Oliwier Gesla)