Questions about reporting income increases to the Trustee

[switch625]

Where is it written in the Bankruptcy Code/Rules that a debtor who is post-confirmation (and more than 180 days post-petition), must on their own initiative and absent any request or order from the Trustee, Bankruptcy Court or creditor report any increases in income to the Trustee (bonuses, increase income, inheritances, lottery/gambling winnings etc)? Or is this requirement something that has evolved from case law? I've found at least one amicus brief filed in a recent 8th Circuit appeals case filed by the National Consumer Bankruptcy Rights Center that speaks to post-petition modifications of Ch. 13 plans. The NCBRC's view is that "...Chapter 13 debtors are not required to amend schedules which were accurate when filed to reflect post-filing changes in their financial situation. There is no general obligation in the Bankruptcy Code or Rules to report post-petition changes in assets, income or expenses." (Page 2 of the brief). See link below.

Second question - I think I've read on this forum that a 10% or more increase in income is the general benchmark by which a trustee is going to want to take that money and distribute it to creditors. Is that in the Code or is that a general practice of trustees? Is this based on an annual increase of 10% or 10% of your total claims or base? Or was I mistaken altogether about this 10% benchmark?

http://www.ncbrc.org/wp-content/uplo...s-8th-Cir..pdf

[LadyInTheRed]

Bankruptcy Code Section 1306(a)(2) provides that the debtor's earnings are part of the bankruptcy estate in Chap 13. 541(a)(5) says that an inheritance or gift or domestic settlement received within 180 days of filing is the property of the estate. Sometimes requirements to report changes are in the confirmation order or local rules. Sometimes they are a matter of local custom or case law, derived from interpretations of the bankruptcy code. It would be interesting to see how the court ruled or will rule in the case that the amicus brief was filed in.

The 10% is what BK forum members have reported based on their own experience and the experiences posted by others.

The best practice for a Chap 13 debtor with any major changes to their income is to let their attorney know and follow their attorney's advice.

[LadyInTheRed]

I finally had time to read the amicus brief. The issue in that case is not whether a plan must be modified. It is whether the debtor was required to amend his schedules to disclose a legal claim that arose post-petition and whether the district court was correct in preventing him from filing a lawsuit against somebody because he did not amend his bankruptcy schedules to disclose the claim. Disclosing an increase in income to the trustee is not the same thing as amending schedules. But, the brief does discuss law relevant to increases in income. It seems the law is not settled in all circuits on that point. Unfortunately, the outcome of that case won't help. Read through the brief and look up cited cases and maybe you will find something more on point.

I looked back at your previous posts and see that you had an increase in income that you reported to your attorney and that your attorney did not disclose to the trustee even though he apparently thinks it should have been disclosed. Is the trustee now claiming you should have disclosed the increase? If so, the following excerpt from the brief is relevant:

The Code itself also has a procedure that, when invoked, requires further
affirmative disclosures by the debtor. Under Section 521(f), a Chapter 13 debtor
may be required to produce annual income and expense statements at “the request
of the court, the United States trustee, or any party in interest.” 11 U.S.C. § 521(f);
see also In re Nance, 371 B.R. 358, 371 (Bankr. S.D. Ill. 2007); In re Grunauer,
2010 Bankr. LEXIS 1716 (Bankr. E.D. Va. 2010). This procedure “allow[s]
interested parties to monitor a debtor’s financial situation during the pendency of
the bankruptcy case and to seek modification… if changes in that situation occur.”
Nance, 371 B.R. at 371. Even though changes in a debtor’s situation could affect
projected disposable income, and be relevant to the feasibility and amount of plan
payments, Congress placed the burden of requesting this heightened disclosure on
parties other than the debtor. 11 U.S.C. § 521(f).3 Section 521(f) disclosures
would also be superfluous if debtors already had ongoing disclosure obligations.

The cases cited are district court cases and their rulings are not precedent that have to be followed by other courts But, they can be used as persuasive precedent before other courts.

[LadyInTheRed]

That case was decided. The debtor in that case was required by the confirmation order to disclose any events that affect disposable income, including lawsuits. Here's the decision: http://media.ca8.uscourts.gov/opndir/16/01/152068P.pdf. It isn't really relevant to your question, but the above excerpt from the amicus brief is.

[justbroke]

As LITR wrote, there are some nuances and differences in how this is played out. A Chapter 13 debtor is required to abide by the plan of confirmation and to comply with any requests of the Trustee. The Trustee finds out your income because most Chapter 13 debtors are required to submit their income tax returns to the Trustee for inspection. The Trustee can then motion the court to modify the confirmed plan if the income increased significantly. (We only guess that it's around 10% because that has seemed to be the trend. How a particular district and/or Trustee deals with income increases throughout the life of the plan, is too fact specific.)

[switch625]

Thanks LITR and JB. I read the appellate decision. The unexpected takeaway from this case for me is the peril for debtors in not disclosing legal claims arising during the BK case such as a discrimination claim that could involve monetary settlements, as the defendants will find out about the BK case, argue for judicial estoppel and stop that lawsuit (and usually succeed in doing so, from reading similar cases). I also found it interesting that the debtor was able to reopen is BK case AFTER discharge to get the lawsuit claim added, which didn't help.
As for me, modifying my 13 is an eventuality because my mortgage has been modified, and that needs court approval so amending my schedules will most likely occur, right? My concern is focused on any other income increases down the road as I approach the halfway point of plan payments. I filed in a district that doesn't ask for annual tax returns or I/E statements. My confirmation order has no specific instructions to report changes in income or lawsuit filings. The CO also states, "...Future property not proposed, or reasonably
contemplated, to be distributable to claimants under the plan shall revest in the debtor(s)..."
My attorney says that if I receive $ I am to report it to the Trustee. I've combed my BK documents, BK Court's website, Trustee's website and can find no written instructions to that effect. so where does this requirement come from?

[justbroke]

You are so stuck on the requirement to report. It comes from 11 USC 1306, 11 USC 1322, 11 USC 1329, and 11 USC 541, individually and taken together. This has really been litigated ad naseum (and through most Appellate Circuits).

11 USC 1306 says that "all property of the kind specified in [section 11 USC 541] that the debtor acquires after the commencement of the case but before the case is closed, dismissed". That's how you get a continuing obligation for new property. Remember, property is everything including money.

What confused many debtors is 11 USC 1322 which reads that property may vest back to the debtor upon confirmation. They are talking about property that existed BEFORE THE CASE COMMENCED. They are not talking about property "acquire[d] after the commencement of the case" (11 USC 1306).

What you're looking for is not spelled out in "English". It's spelled out in a legal form and the form is really 11 USC 1306 and 11 USC 541 and any interaction with "vested" property in 11 USC 1322.

I hope that helps you understand how the code sections interact.

(Added) Justbroke's Study Guide: I just looked up a case for you from Florida to read about 11 USC 541 and 11 USC 1306 and the interaction in a 11 USC 1329 plan modification. http://pacer.flmb.uscourts.gov/pdf-new/3163fc2.pdf This case goes into a lot on whether this particular property (proceed from settlement) is "property of the kind specified in section 541", whether it's exempt because it was scheduled as such, and whether the Trustee can defeat the 30-day rule for exemptions. A little complex and this case reaches a different result than what I'm advocating here, but it does go through the 11 USC 1306 and 11 USC 541 analysis.