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When you file for Chapter 13 bankruptcy you will make monthly payments to the Trustee assigned to your case and they in turn will send money to your creditors. This differs drastically from a Chapter 7 bankruptcy where your unsecured debts are simply forgiven. I am often asked what determines the amount of monthly Chapter 13 bankruptcy payments and what could cause these to change.
Here is what you need to know that can cause payments to increase or decrease:
Increase in Income
I am often asked what happens when you get a raise while you’re in the midst of a bankruptcy. What’s typical is that the Trustee will review your pay stubs and tax returns annually. If you’ve received a significant raise that increases your disposable income, they may exercise their authority to increase your monthly Chapter 13 payments to more fairly service your debts!
Decrease in Income
I have also seen (more rarely) instances where debtors can have their monthly Chapter 13 payments decreased. If you lose your job, are demoted, are cut from full time to part time or have any change in employment status that decreases your income, you may not want to wait for the Trustee’s annual review. Your bankruptcy attorney can file a motion to request a review of your income and monthly payment amounts to try and get them lowered.
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If you skip a monthly payment (or more than one) your future monthly amounts can be increased to make up for the missed payments. This is a common practice and why I tell people not to get in over their heads with a Chapter 13. If you truly can’t afford your debts, it may be prudent to consider a Chapter 7 instead!
Recalculation of Debt Owed
I see frequently that debtors may list a certain amount they think they owe to a creditor that is lower than what is actually owed. The Chapter 13 monthly payments are set based on the information you provide when you file your documents. But if the creditor is able to prove that you actually owe more, your monthly payments may be increased!
Converting from Chapter 13 to Chapter 7
If your Chapter 13 payments are increased and you can no longer manage your debts you may want to talk to your North Carolina bankruptcy attorney about converting your bankruptcy case from a Chapter 13 to a Chapter 7 to get a fresh start without the onerous monthly payments! Your income in comparison to your debts is the prime consideration in whether this is possible. Even if you make a decent wage, it may be possible to file Chapter 7 if your debts are disproportionately high in comparison to your earnings!
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Contact Us Today for Answers to These and Other Bankruptcy Questions
Contact the law offices of John T Orcutt if you live anywhere in North Carolina – Raleigh, Durham, Greensboro or any other city – and are considering a Chapter 13 or Chapter 7 bankruptcy. We offer free consultations and flexible payments plans to get you the debt relief you need!