Choosing which chapter to file Las Vegas bankruptcy in is one of the most important decisions debtors make, though the Chapter 7 means test takes the decision away for some debtors. The allure of Chapter 13, among other things, is that it allows debtors to reorganize their debts according to a repayment plan based on their existing income and then discharges those debts when the plan is concluded after three to five years. However, many debtors wonder what happens to their repayment plans if their incomes increase. It’s an important question because incentives matter: People don’t want to work harder to earn more if the trustee is simply going to take it away and hand it to creditors. This can have serious ramifications for debtors’ willingness to search for jobs or expand business operations. Here’s a quick rundown of what happens.
(1) The bankruptcy code requires debtors to pay all their disposable income to their creditors via the Chapter 13 plan. If debtors become more able to pay, they should pay more. The goal is to ensure the creditors receive what they are owed.
(2) Debtors must submit their annual tax returns to the trustee for the duration of the plan.
(3) Trustees will not attempt to change the plan for small changes in incomes. Their goal is to ensure that large windfalls, such as job promotions, do not accrue to debtors. Often, increases of less than $500 in monthly income will go to debtors.
(4) The bankruptcy code also allows debtors to log increases in expenses that offset income growth. If their net incomes ultimately don’t increase much trustees will not increase payment amounts.
(5) Failing to properly report income or intentionally concealing income will result in serious punishment, including a denial of discharge.
The point is, Chapter 13 bankruptcy can help debtors get back on track if they are still making a good income, but it won’t let them reap large windfalls.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.