Effects of a Salary Increase on a Wage-Earner Plan Under Chapter 13

If your bills keep piling up, but you are concerned about filing for bankruptcy because you do not want to lose your home, Chapter 13 may be a good option for you. Contact an experienced bankruptcy attorney to discuss your options.

Chapter 13 bankruptcy protection enables qualified individuals to place debts, such as car payments, mortgage payments, income taxes and other obligations, into a repayment plan. At the law office of Mark T. Young & Associates, we provide comprehensive Chapter 13 bankruptcy representation. We invite you to learn more about how Chapter 13 protection may be the best solution for your financial situation.

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Chapter 13 bankruptcy protection may be the best way to stop foreclosure and enable you to keep your home. Attorney Mark T. Young has more than 30 years of experience helping individuals throughout Chattanooga stop foreclosure, creditor harassment and legal actions through proper Chapter 13 representation. Notably, he is a Certified as a specialist in Consumer Bankruptcy by the American Board of Certification consumer bankruptcy lawyer who has exclusively devoted the past 15 years to bankruptcy representation.

At the Tennessee law office of Mark T. Young, we prepare and file Chapter 13 bankruptcy petitions for individuals throughout Chattanooga. Our dedication and attention to details enable us to file petitions effectively and efficiently. We are committed to helping individuals achieve debt relief.

Effects of a Salary Increase on a Wage-Earner Plan Under Chapter 13

When a Chapter 13 debtor enters into a wage-earner plan, he or she commits the next three years' disposable income — that portion of the debtor's income not required to meet the necessary needs of the debtor and his or her dependents — to the repayment of debt. Often, a debtor's income will increase after the plan is in place, and the question arises as to what becomes of this increase in income. A lawyer at Mark T. Young & Associates in Hixson, Hixson, can answer these and other Chapter 13 questions as they arise, providing information, reassurance and competent and zealous advocacy throughout the bankruptcy process.

The debtor may be allowed to retain the increase in income unless the increase is significant and there are no offsetting increases in expenses.

The Bankruptcy Code requires that the debtor contribute his or her projected disposable income toward the plan payments for the first three years (36 months) of the plan. Although the Code imposes this requirement only when the trustee or a creditor demands it, in reality the trustee always requires it, at least at the beginning of the plan. Whether changes in salary will change the payment plan depends on a complete consideration of all of the relevant circumstances.

It is possible that a debtor's income could change after he or she files the petition, but before the court has confirmed the plan, which makes it binding on the creditors. A debtor may change jobs, get a raise or start a second job. During the time between filing and confirmation, the trustee will watch the debtor's disposable income to make sure that the payments fit with the debtor's income level and make any changes to the plan.

If the debtor's income changes within the first three years (36 months) of the repayment plan, it may not be necessary to make changes to the payment amounts. However, if the debtor's income increases by a significant amount, the trustee may ask that payments be adjusted accordingly. The trustee generally is not responsible for closely monitoring the debtor's income. After three years of a confirmed plan, if the plan even extends that long, there is no specific requirement in the Bankruptcy Code that disposable income be contributed to the plan, so an increase in income at that point in time would probably make little difference.

The trustee will consider not only the salary increase, but also whether there has been a corresponding increase in disposable income on which the payments are based. Disposable income is the amount of the debtor's salary that is left after deducting all reasonable living expenses. If the debtor's expenses increase along with his or her salary, the debtor's disposable income may not change and the payment plan will not change either. If the debtor's disposable income increases by a substantial amount, the trustee may ask for the payments to also increase. If the plan goes beyond 36 months, the increased payments may actually reduce the length of the plan. This would mean that the debtor has paid off his or her debts sooner and would receive a discharge earlier.

Speak to a bankruptcy lawyer

It could be disheartening to a debtor to receive a raise and have to turn it all over to the trustee for debt repayment, but that is not always the effect of a salary increase. A lawyer at Mark T. Young & Associates in Hixson, TN, can put your mind at ease when questions about a Chapter 13 bankruptcy arise.

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