Getting a big bump in pay while in Chapter 13...

[midori]

Hello,

I have been in my 60 month plan for about 6 months now. No issues making payments, as they are taken out of my paycheck. I am in the process of looking for a new position, and I have a couple interviews lined up over the next 2 weeks. All of these jobs pay any where from 10k to 15k more than I am currently making now (50k).

Does any one have any idea how this would affect my plan? Could I go from a 5 year to a 3 year? Or would my bi-weekly payment just go up for 60 months? I don't have any plans to do anything different with the raise, perhaps move to a better rental in a better neighborhood, but that should only increase my rent by 100 to 150 dollars per month.

I would like to get out of my plan sooner if possible. Any insight or help would be greatly appreciated.

[newbie2]

If your increase in income is such a large one that you could conceivably pay 100% to your unsecured creditors then you could be done with your plan as soon as they are all paid in full (along with an priority debt that may be in your plan.) When you have the new job and have gotten a couple of paychecks give your attorney a call to notify him/her of the increase. A modification of your plan will be done showing your increased income (as well as any increase in expenses). Hopefully the increase will be enough to put you at that 100% target in a shorter period of time than the full 5 years. Good luck to you!

[lrprn]

Does any one have any idea how this would affect my plan?

If you do get one of the new positions, that's a 20-30% immediate increase in income over what you are making now and that increase is long-term. Many trustees use a 10% long-term increase as the level where they begin to look seriously at your increase in disposable income and whether they should petition the court to increase your payment. Did your trustee instruct that you were to report any increases in income after filing?

If you do get one of these new positions, then your lawyer can tell you if you do need to notify your trustee about it, how to notify your trustee, and when. Be sure to let your lawyer know if you do get one of these higher paying positions right away.

Could I go from a 5 year to a 3 year?

No. Three year plans are restricted for Ch 13 filers who are under the median income for their state.

However, if your new increased disposable income causes the trustee to pursue increasing your monthly Ch 13 payment which then increases the payback % to your non-secured creditors to 100%, your five-year plan could end up shorter because by law you can only be made to pay until all creditor claims are paid in full or 60 months, whichever comes first.

Or would my bi-weekly payment just go up for 60 months?

If your trustee is one that wants to be notified about increases in income (a few don't want to know) and your income does go up 20-30%, then yes, if your trustee makes a motion to the court to increase your payments to incorporate the new disposable income and that new amount is confirmed, then your bi-weekly payment could go up for the remainder of your plan.

I don't have any plans to do anything different with the raise, perhaps move to a better rental in a better neighborhood, but that should only increase my rent by 100 to 150 dollars per month.

$100-150 more in expenses a month won't offset the amount of income increase you describe. Again, everything is going to hinge on whether your trustee is one that will pursue your 20-30% permanent salary increase and petition the court to increase your monthly Ch 13 payment to get more for your creditors.

I would like to get out of my plan sooner if possible.

Since the current bk law went into effect in October 2005, the only way to shorten your five year plan is (1) pay successfully on your Ch 13 for at least three years (this is the timeframe that most courts set) , (2) get the total payoff amount from your trustee (it's not the amount you see on your trustee's online accounts), and then (3) pay off 100% of the non-secured claims and any arrears in the plan.

Most 13 filers can't make this lump sum kind of payment - it's much too large. However, if you have a family member willing to give you the money, if you win the lottery, etc. then talk to your lawyer about the process for early Ch 13 payouts in your local court.

[sunshynny]

The trustee never mentioned any instructions regarding out income becoming larger. We asked out lawyer before the 341 meeting because we documented a 5% raise for the next two years on our paperwork and we knew we might get a little bit more if our union contract passed. Our lawyer told us the trustee looks at our tax returns every year and would decide whether to raise the payments in our plan and not to worry about it.

[newbie2]

The OP is in Michigan. The reason I advised the OP to contact her attorney about this is because the trustees in the Eastern District of Michigan mandate sending copies of income tax returns, and reporting of any increase in income throughout the plan. They are pretty strict about this. That doesn't mean the OP won't be able to keep the raise, but it does have to be reported, and if necessary a modification to the plan will occur.

[catleg]

You might want to shove all the "extra" income into a 401k to protect it from the trustee (it is then not reported as "income" on your W2 so its effectively "hidden" from casual observation of your tax return). Money contributed to a 401k is not "property of the estate". Then if you have a financial crisis you can always borrow it back out.

[jetsfan2010]

You might want to shove all the "extra" income into a 401k to protect it from the trustee (it is then not reported as "income" on your W2 so its effectively "hidden" from casual observation of your tax return). Money contributed to a 401k is not "property of the estate". Then if you have a financial crisis you can always borrow it back out.

I agree with this as well, but double check with your attorney. If it is a long term increase and not a 1 time bonus, then increase your 401k contributions.

[midori]

Thanks so much for all the feedback. I am going to give my atty a call this week to see what will happen. I would like to contribute more to my 401k at my "new job". I will update this post once I speak with him.

[Flamingo]

You financial house is under the control of your trustee from the date of your filing to your date of discharge. If your income increases or decreases during that time, if you get a bonus, hit the lottery, receive an inheritance, lose your job, etc., always immediately contact your attorney and inform him/her. Not to do so can result in the dismissal of your Plan. I would not attempt to hide any money in a 401(k) or elsewhere before consulting with one's attorney. Your trustee can ask for any financial information at any time during your plan years.

[becky20]

I know that I contacted my attorney last year to find out about contributing to 401K (i wasn't previously but wanted to start and was told I couldn't...). I have to send my tax forms each year (have never been asked for the actual W2 forms, just the tax return). So you're saying that he can't tell from my tax return if I'm contributing to 401K? We're 3 years into the 5 year plan and dang I hate the thought that I'm losing out on all that employer matching... I'm seriously considering enrolling at least with the minimum contribution to get the employer match...

[catleg]

No. The only way he could tell is if he gets access to the actual W2 forms which state how much income went into retirement plans. The tax return itself doesn't have that information. The law is pretty clear, money directed to a 401k is not property of the bankruptcy estate. Period.

[becky20]

Thanks! I'm not asking them to re-submit my plan and change my payment, I'll take the hit from my budget, I just hate that I'm getting older and older and have nothing set aside for retirement. I could kick myself for not doing it earlier... shame on me. Better late than never I guess, right?

[TShoot]

No. The only way he could tell is if he gets access to the actual W2 forms which state how much income went into retirement plans. The tax return itself doesn't have that information. The law is pretty clear, money directed to a 401k is not property of the bankruptcy estate. Period.

My Trustee (Maryland) made me cut back my 401K contribution until I hit the point that the employer would match my funds. So, I went from a 10% contribution to a 4% contribution. Are you saying that they can't legally request that?

Now I know they can't touch the funds you already have accumulated in your 401K up to $1M (ish) but I thought they had the right to demand the max amount you could continue to contirbute. Am I wrong?

[jetsfan2010]

thats the first time I have heard someone being told to cut back on 401k contributions. Had you been consistently giving that amount leading up to filing?

[TShoot]

Was giving 10% to my 401K for years up to the filing. Trustee felt it was excessive and was taking away from my disposable income. I asked the lawyer if he could push for letting me contribute at least up to the point where my employer would match a portion of my contributions. She was okay with that - barely. It ended up being 4% instead of my usual 10%.