Will I Have To Pay More in a Chapter 13 If I Get a Pay Raise in the Future?

This question really depends on where you have filed your chapter 13 petition since the local rules of each court governs how income changes will affect a chapter 13 plan.  In some district, the change will not matter but it others it might.

In the Middle District of Alabama, if you receive a 10% pay raise then your attorney should review your current income with your expenses to determine if you payments would need to be increased.  Your monthly expenses will help to offset the increase if your expenses increased as well. For example, if you work and live in Montgomery, Alabama, but find employment in Birmingham making 10% more and still are planning to live in Montgomery then the increase in gas expenses for your vehicle will offset the 10% increase in your income so there will probably not be additional income available to pay to your chapter 13 plan.

The reason the Middle District of Alabama requires us to review your payments when there is a 10% change is because the law requires that you pay all disposable income to your chapter 13 during the mandatory timeframe you are required to be in chapter 13.  If you made below the median income when you filed your case then you are required to pay any extra income you receive during the first 36 months over to your plan and if you made above the median income when you filed then you will be required to pay any extra income that you receive during the 60 months you are in your plan.

The law works both ways!  In the Middle District of Alabama, if your initial payments were based upon the amount of income you made at the time you filed and you later have a decrease in your income, you will want to contact your attorney to find out if the decrease is enough to reduce your chapter 13 plan payments.  Several years ago we had several clients who worked for a local plant which eliminated all overtime hours when before these clients were receiving 15-25 hours of overtime per week.  This was a huge decrease in income for these clients and we were able to reduce their chapter 13 payments until the plant started paying overtime again.

Whether it be a substantial increase in income, lump sum payment or a reduction in your income, it is very important that you communicate with your bankruptcy attorney so that they may help you protect the funds you need to support you and your family.  If you are interested in learning more about chapter 13, contact your local Bond & Botes office for a Free Consultation.