Income Increase During Chapter 13

[Anonymous]

Hi everyone, 

I have browsed these forums for a while and they have been quite helpful, and am hoping you all can provide some further advice.  Some background information:

I filed for Ch 13 in April of 2016 due to a severe gambling problem...I racked up about ~$50,000 in unsecured debts to fund gambling (mostly personal loans with a few credit cards), had a $20,000 car loan, and had about $100,000 total in student loans.  I am happy to say that I have not been to a casino or gambled in months since self-banning myself within my state from casinos and occasionally visiting Gambler's Anonymous meetings.  My friends and family have also been hugely supportive in helping me recover both financially and from a mental/addictive standpoint.

When I initially filed I was making about $48,000/yr gross, with $3,000/month being the amount of income after allowable deductions being disclosed on my petition.  The amount of expenses claimed were about $2,200.  My monthly payment amount under the plan is a bit shy of $800.  In calculating my expenses, my attorney used my actual monthly rent amount of $435 (I split an apartment with 2 other people), rather than the almost $1,000 allowed for my county according to the justice.gov means testing website.  Her reason was that if I claimed the entire amount, my proposed plan payment would have been only about $225 and unlikely to be approved by the trustee.  The $800 amount we agreed was reasonable and allowed me to live comfortably while building a savings.

Fast forward to now, and I am due to receive a significant promotion and corresponding salary raise at work.  On my petition I noted that I did not expect any significant increases within a year of filing, and at the time that was true, as I could not have seen this promotion coming which resulted from special circumstances only very recently.  My new salary under my new job title would be $66,500/yr gross, or roughly $4,000/month after taxes and mandatory pension withholdings are accounted for.  This is about $1,000 more a month in "disposable income" or 33% increase (38% increase for gross annual salary) from my petition amounts.

I am required to submit annual tax returns to the trustee through my lawyer, but no where in my confirmation order does it state that I must report increases in income.  Theoretically, if I don't report the increase, the trustee would not see it until the beginning of 2018 when I submit 2017's return.

I know the best answer is to talk to my lawyer, but I was curious to see if anyone else has gone through this situation.  My expenses wouldn't necessarily go up, except that I am considering getting a 1-bedroom apartment in July where I would see my actual rent amounts go from $435 to $800 possibly or more a month.  I assume that if I have to report my income increase, we could adjust my expenses as well for the rent increase.  Or does anyone think that I won't even have to report this and the trustee wouldn't care, because my confirmation order does not dictate this disclosure (I have read this particular stance a few times on other websites).

I appreciate if you have taken the time to read this lengthy post, and am grateful to any and all help provided.  I live in Ohio if that has an impact on this.

Thanks!!

[Anonymous]

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krob14 wrote:

Hi everyone, 

I have browsed these forums for a while and they have been quite helpful, and am hoping you all can provide some further advice.  Some background information:

I filed for Ch 13 in April of 2016 due to a severe gambling problem...I racked up about ~$50,000 in unsecured debts to fund gambling (mostly personal loans with a few credit cards), had a $20,000 car loan, and had about $100,000 total in student loans.  I am happy to say that I have not been to a casino or gambled in months since self-banning myself within my state from casinos and occasionally visiting Gambler's Anonymous meetings.  My friends and family have also been hugely supportive in helping me recover both financially and from a mental/addictive standpoint.

When I initially filed I was making about $48,000/yr gross, with $3,000/month being the amount of income after allowable deductions being disclosed on my petition.  The amount of expenses claimed were about $2,200.  My monthly payment amount under the plan is a bit shy of $800.  In calculating my expenses, my attorney used my actual monthly rent amount of $435 (I split an apartment with 2 other people), rather than the almost $1,000 allowed for my county according to the justice.gov means testing website.  Her reason was that if I claimed the entire amount, my proposed plan payment would have been only about $225 and unlikely to be approved by the trustee.  The $800 amount we agreed was reasonable and allowed me to live comfortably while building a savings.

Fast forward to now, and I am due to receive a significant promotion and corresponding salary raise at work.  On my petition I noted that I did not expect any significant increases within a year of filing, and at the time that was true, as I could not have seen this promotion coming which resulted from special circumstances only very recently.  My new salary under my new job title would be $66,500/yr gross, or roughly $4,000/month after taxes and mandatory pension withholdings are accounted for.  This is about $1,000 more a month in "disposable income" or 33% increase (38% increase for gross annual salary) from my petition amounts.

I am required to submit annual tax returns to the trustee through my lawyer, but no where in my confirmation order does it state that I must report increases in income.  Theoretically, if I don't report the increase, the trustee would not see it until the beginning of 2018 when I submit 2017's return.

I know the best answer is to talk to my lawyer, but I was curious to see if anyone else has gone through this situation.  My expenses wouldn't necessarily go up, except that I am considering getting a 1-bedroom apartment in July where I would see my actual rent amounts go from $435 to $800 possibly or more a month.  I assume that if I have to report my income increase, we could adjust my expenses as well for the rent increase.  Or does anyone think that I won't even have to report this and the trustee wouldn't care, because my confirmation order does not dictate this disclosure (I have read this particular stance a few times on other websites).

I appreciate if you have taken the time to read this lengthy post, and am grateful to any and all help provided.  I live in Ohio if that has an impact on this.

Thanks!!

---

From personal experience, I recently had a Chapter 13, and I can tell you one basic fact. It is either designed to be a Paid in Full over time, or less than a full amount because of a lack of income.

If you desire to complete and "exit" it before the full term, it will be a PAID in FULL amount that you owe.

For the Discharge to occur with the approval first of the Trustee, then the Judge in the Bankruptcy Court, it will be thoroughly reviewed. They will see all of your data. Your creditors will be paid.

Having said this, it is clearly a moot point in my opinion, because it is my "perception" that you seem to be trying to "game" the system.
Didn't you just mention that you have a severe gambling problem?

Despite having filed the Chapter 13 in April of 2016, you state you have not been to a casino or gambled in months since self-banning. What is the definition of months? Why not say "NOT at all"?

The austerity and self-discipline of a Chapter 13 bankruptcy DEBT repayment system over 4 to 5 years is not an easy process. It is simply a daily affirmation of HONESTY in acknowledging that "I have debts to pay", and paying them.

Even having an academic discussion of how to "game" the system "because my confirmation order does not dictate this disclosure", is a big gamble, don't you think?

* Let me stop for a moment to stipulate that this forum is a safe place, and one where all can openly discuss things.

But as an individual, I am not willing to either enable or encourage a person to make choices which have previously impacted them in an adverse manner.

I sincerely wish you well, and affirm the positive choices you have already been successful with.

. . . . . . .

I choose to make and post my comments because of your sentence:

"I appreciate if you have taken the time to read this lengthy post, and am grateful to any and all help provided."

[Anonymous]

Hi Sebastian,

Thanks for taking the time to respond to me.  I understand your perspective and realize that it certainly may have came across that my intention was to cheat or game the system.  Please know that this is not my intention.  I only want to do what is allowable within the bounds of the law (knowing full-well that any lender would use every quirk and distinction within the law to their benefit as well).  It is just the idea of my hard work in earning a nice promotion and not reaping any of the associated benefits feels quite disheartening.

I also understand your stance with regards to me 'taking a gamble' on not reporting this information.  Again, I do not want to simply take a chance that my Trustee does not notice the income increase, but rather was interested in the legal aspect of how it affected my case.  With respect to me saying I have not been to a casino in months, instead of not at all, you could say I have not been to a casino in Ohio at all since banning myself after my case was filed.  However, I was out of state to visit a friend at one point and he wanted to drop by a local casino.  I went because it was easier than trying to explain to him my situation, which at the time still made me feel like the lowest being possible.  I have not felt as good as I do now, since coming clean to a few really close friends and my family, than I have in a very long time.  So I appreciate your acknowledgement of some of the positive choices I have made recently.  

I am still interested in hearing anyone else's experience in a similar situation.  Also, I have e-mailed my lawyer telling essentially what I wrote in the OP, minus gambling stuff that she already knows.  I will update this thread when I get her opinion.  If I need to give all my extra income to the Trustee, then so be it.  It was me who made terrible decisions and let things get horribly out of control, and I intend to be accountable for those actions.  I personally don't feel that trying to keep some of my raise and living a little better during this process, in an allowable manner, is such a bad thing though.

Feel free to respond in the mean time and I will be more than happy to discuss further.

Thank you!

[Anonymous]

Hey krob14,

I am very happy for your successes, and only wish you well.

If the post didn't have any reference to gambling, my reply would have been the same as above, as the 7 & 13 processes are both based upon for lack of a better phrase, a "means test".

It is either a 7 or a 13.

It is either a schedule to pay the 13 in full, or what one can afford over a period of time.

* so my unanswered question still remains. Is your 13 currently structured to be paid in full before its conclusion, or not?

If not, I can only assume that at some point over the next three to five years, as your annual income tax returns are reviewed, the increase in your ability to pay your debts will probably be discovered.

As you know, the Trustee is not your friend. Their job and focus it to get your creditors paid as much as possible In Full, after the Trustee & your Attorney are paid first.

Given that this is a two-dimensional forum, please try not to perceive my communication as containing a negative tone, because it is not intended in that manner. Just an effort to objectively discuss the topic.

Best Wishes!!!

[Anonymous]

I would think that not disclosing extra income would cause a problem.  The trustee will find out when you submit your tax return.  You say you are not reaping the benefits of your promotion.  In reality, you lost that benefit when you made the debt.  It does sound as if you are asking the people of this board to give you "permission" to do what you know isn't right (not telling the trustee).  I also get the impression you have already made up your mind.  You just want someone to say it's ok.

[Anonymous]

Sebastian,

As you have probably correctly assumed, my Chapter 13 is not a 100% repayment. The unsecured creditors are only scheduled to receive roughly 15% of their claims.  This is in large part to the car being required to be paid at 100%, as well as the inclusion of the student loans amongst the other unsecured loans.

You are right in that the whole purpose of my plan is to pay my creditors as much as possible over the 5 year period, since it will not be at 100%.  I know the Trustee is not my friend and their job is to make the creditors (after herself and my lawyer) as whole as possible.  However, I also know that not all Trustees are the same, and from some research it does not appear that all Trustees are required by law to increase plan payments after every income increase.  For instance, if my raise was only 8% more than my original amount petitioned, than it seems the general consensus on the internet is that no changes would be made.  For increases above 10%, I get the impression this is where plan increases most likely will be mandated by the Trustee, but according to their own discretion.  

So, if I am getting a 35% increase, would it make sense that maybe I keep 10% and put the other 25% towards paying creditors?  In my mind this does not seem unreasonable.  Again, I fully acknowledge that the most likely scenario involves my payments increasing, but the rules governing how that works are not clear to me.  This is why I knew I would not necessarily get 100% accurate legal advice here, but rather I hoped someone who had gone through the same experience could relate their experiences and how the process worked.

I did not intend to make it seem as if I took your original response as being hostile or negative.  I enjoy reading this forum because everyone is so friendly and willing to help others in similar positions.  I do hope to be able to contribute to that amicable atmosphere.  Thanks again!

Em71, 

I also assume that not disclosing would be problematic in the future, but as I've said above, this is not very clear from my research.  The Trustee does only require I submit an annual tax return, but their is no language stating that I immediately disclose any income increase, hence my initial questions.

I also fully agree that I gave up future benefits in part when I made my debts.  I have every intention of doing what is required of me by the Trustee and the court, I just don't know yet what that all entails.  Of course part of me hopes someone chimes in from a similar past experience and tells me they got to keep all their raises, that'd be great for me personally (though admittedly against the spirit of a Chapter 13).

My mind is not completely made up in the sense that I am not going to report anything to the Trustee.  I am going to follow the advice of my lawyer, otherwise what am I paying her for.  Again, I am more interested in others' experiences in this situation.  If I have to give up my entire raise, it will not be the end of the world, in fact life will continue on just fine.  I don't think its a fault to try and keep as much of the money that I earn as I can (within the law and rules of the court).

Thanks for your response!

[Its_Me]

My husband and I filed chapter 13 in January 2010 (Ohio). My salary increased 3-5% each year until 2013 when I received a 22% increase. In 2012, my husbands salary increased by around 25-28%.Neither were expected. We were not required to submit tax returns or report salary increases. We were not on a 100% plan either.

I'm not sure how things would have been different if we were required to report significant increases and tax returns.

[oldman425]

During my Chapter 13 that was 100% paid, we had to each year fill out a questionnaire from the Trustee that was asking about increases in pay or living expenses.  Our montly payment never went down, but it did go up.  Started at $1500 a month and the last couple years it was $2K a month.  We were in it for 5 years total.

[Anonymous]

As a former 13 person myself, my income went up as well, quite significantly within the first 2 years.  However I was not required to report such increases, or provide tax returns.  My payback amount stayed the same throughout.

[dt3813]

In my 13 my salary increased significantly. I was not in a 100% plan. My trustee required no updates and never asked for tax forms. My payment stayed the same.