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If during Chapter 13 a debtor receives a promotion or otherwise

Resolved Question:

If during Chapter 13 a debtor receives a promotion or otherwise receives an increase in income; how or does it affect the assigned trustee payment?
Submitted: 10 months ago.
Category: Consumer Protection Law
Expert:  Law Pro replied 10 months ago.
Hi! Thank you for asking for me.


Technically, if a chapter 13 debtor's income increases - they are suppose to report substantial changes to the Trustee.

However, it's usually very questionable if the income increase is on an ongoing continuing basis or just a 1 time event.

Can you explain more what you are thinking about as to an increase in income?
Customer: replied 10 months ago.

I was thinking if I had to file Chapter 13 again and if my renter did not pay or if I had a signicant expense; If I could withdraw from my 401k or decrease my 401k contributions for a while or work overtime.


 

Expert:  Law Pro replied 10 months ago.
OK, that's a different issue. Bankruptcy courts around the country have been divided over whether a Ch 13 bankruptcy filer can continue to make payroll contributions to a retirement plan during the Chapter 13 repayment period. In a recent case, the Bankruptcy Appellate Panel of the 9th Circuit ruled that Chapter 13 debtors cannot continue such voluntary contributions during Chapter 13 bankruptcy. In re Parks, No. 11-1366 (9th Cir. BAP, Aug. 6, 2012).

So, if you do file a Ch 13 bankruptcy - you won't be able to continue with your 401K plan but the monies you had been placing therein would be considered part of your gross income.

An individual may be able to withdraw from his/her 401K if he/she has filed for Chapter 13 Bankruptcy if the 401K is fully exempted from the bankruptcy and the individual is not borrowing any money.

An individual may not take a loan on his/her 401K if he/she files for Chapter 13 Bankruptcy. If he/she has to take a loan, then he/she may need the approval of the court to do so. In the case of Ch 7 Bankruptcy, the bankruptcy case would be only for 90 days and the individual would still need the court’s approval to take a loan on the 401K.

An individual may be able to cash out his/her 401K in a chapter 13 bankruptcy. However, the money that the individual gets from the 401K will be used by the bankruptcy trustee to repay all the individual’s creditors.



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