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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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I am in a ch 13 bankruptcy, I understand I must surrender any

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I am in a ch 13 bankruptcy, I understand I must surrender any tax returns to the IRS. Does this money reduce the amount I owe in the repayment plan, or is this just "extra" money distributed to the creditors?

cfortunato :

Hi JACustomer,

Customer:

hi

cfortunato :

Unless your plan is paying 100% (to unsecured creditors), any tax return refund received after your Chapter 13 was filed is extra money distributed to unsecured creditors.

cfortunato :

In other words, unfortunately, that refund does not reduce the amount you owe for your plan payment - which can basically be reduced only if your income is reduced or if your allowable expenses increase.

Customer:

ok and one other thing, if I get a raise at work or have the opportunity to pick up some overtime, will the trustee see this and next year make me pay more into the plan (ie working extra for nothing) I am hoping to work more this year and start an emergency fund but not sure how this works

cfortunato :

Most trustees ask to see the debtors' federal income tax returns every year - at least in the first few years of a Chapter 13. In general, if and only if, the income on your tax return increases by more than 10%, the trustee can demand that your monthly plan payment be increased to reflect your increase in income.

Customer:

does this happen often, as in if i make 12% more should i expect to hear from the trustee? i would hate to put in a bunch of extra work to just get burned and be forced to pay more and hence forced to work extra to pay the increased payment

cfortunato :

In most cases, when a debtor's income changes, the debtor's income decreases. However, you can definitely assume that if your take-home income increases by 12%, the trustee will want the increase.

Customer:

ok is the 10% increase year to year? or is it 10% over the entire plan, I would hope cost of living increases etc would be considered.

Customer:

also to clarify, hypothetically if my year over year increase in net pay of 13 % would the trustee demand the 3% (over 10%)

cfortunato :

No - you would not necessarily pay the increase over the entire plan period. Nor would you have to pay the increase if your income went back down for the following year. In other words, if your income increased by 13% for 2013, but then went back down, your plan payment would not increase at all.
Any increase has to be based on your current income going forward, not what you earned in the past year.

cfortunato :

And yes, before there could be any increase in your plan payment, the trustee would also have to take into account any allowable increase in your expenses.

cfortunato :

But yes, if your income going forward increased by 13%, and with no corresponding increase in allowable expenses, then the trustee can ask for the entire 13%.

Customer:

ok, 2013 is the first year of my 5 yr plan, if my income in 2013 increases 10% or less the trustee will probably not say anything?

cfortunato :

Trustees usually will not change the plan payment if the debtor's income increases by less than 10% - but they can change the plan payment.

Customer:

basically my finances are a mess (obviously) and I made the mistake of waiting to file ch 13 untill I had absolutely zero savings left. I need to start saving and establishing an emergency fund.

cfortunato :

You or your attorney, if you have one, can ask the trustee beforehand what his or her policy is regarding the amount of increase in your earnings that you would be allowed without having your plan payment increased.

Customer:

ok thanks

Customer:

it wont let me rate you, says ur not finished

cfortunato :

You're welcome!

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