What To Do If Your Income Changes In Chapter 13 Bankruptcy?

Key Points:

Chapter 13 repayment plans last three to five years, and income changes during that time are common. A raise, job loss, or reduced hours can affect your ability to stay on track. Options include:

• Requesting a plan modification through the court.
• Using a temporary suspension of payments in hardship cases.
• Converting to Chapter 7 if income drops significantly.
• Reporting income increases to avoid dismissal or allegations of bad faith.

Chapter 13 bankruptcy is built around a repayment plan that lasts three to five years. In Austin, Texas, that’s plenty of time for your income to change.

A raise, job loss, or reduced hours can shift your ability to pay. The good news is that bankruptcy law gives you options to adjust your plan when life changes.

How Income Shapes Your Chapter 13 Plan

The repayment plan is the backbone of Chapter 13 bankruptcy. Your income is the number one factor that determines how much you’ll pay each month. Knowing this connection makes it easier to see why reporting changes is so important.

Disposable Income Determines Payments

When you create your plan, the court looks at your income, subtracts reasonable living expenses, and calculates your disposable income. That number drives how much you’ll pay into the plan for unsecured debts like credit cards and medical bills.

If your income increases, your disposable income may go up, too. That could mean higher plan payments. However, if your income decreases, you may qualify for lower payments or a temporary suspension.

Regular Income Is Required

To be eligible for Chapter 13 in the first place, you must have a regular income. That could be wages, self-employment earnings, retirement benefits, or even consistent child support.

If your income changes in a way that threatens this stability, the court may require adjustments or even conversion to Chapter 7.

Why You Need To Be Accurate

Failing to disclose income changes can harm your case. If you get a raise or new job and don’t report it, the trustee may accuse you of bad faith. If your income drops but you keep paying the original amount, you risk defaulting on the plan.

Income is the foundation of your repayment plan. Keeping your trustee and attorney updated about changes ensures your plan stays realistic and your case stays on track.

What To Do If Your Income Goes Up

A pay raise, new job, or side hustle can feel like a relief during Chapter 13 bankruptcy. But in many cases, increased income means your plan may need to change.

Report The Change Promptly

You must inform your bankruptcy attorney immediately. They’ll notify the trustee if necessary. Hiding income increases the risks of dismissal of your case. Transparency is always the safer path.

Expect Possible Plan Modifications

If your income increase is significant, the trustee may file a motion to modify your repayment plan. It usually means your monthly payment will go up, so unsecured creditors receive a larger share.

While this can feel frustrating, remember that higher payments may shorten your plan or reduce the total interest you’ll pay on certain debts. In some cases, you’ll complete the plan faster.

Smaller Increases May Not Change Much

Not every bump in income requires a modification. If your raise is minor or your expenses also increased, your disposable income may not change enough to matter.

Why Honesty Pays Off

By reporting income changes and adjusting your plan, you protect yourself from claims of bad faith. It shows the court you’re committed to finishing strong and earning your discharge.

What To Do If Your Income Goes Down

Not all income changes are positive. A job loss, reduced hours, or sudden drop in business revenue can make it hard to keep up with your Chapter 13 payments. Fortunately, the law provides options to help you adjust.

Again, contact your attorney as soon as your income drops. If it’s long-term, file a motion to modify your plan. It could lower your monthly payments to a level that matches your new reality.

The court reviews your updated income and expenses to determine a fair adjustment. Then, you can do the following.

Request A Temporary Suspension

Sometimes income loss is temporary, like seasonal layoffs or medical leave. In these cases, you can ask the court for a short-term suspension of payments. Once your income returns, you’ll resume your plan.

Consider Conversion To Chapter 7

If your income falls too much to sustain Chapter 13, converting to Chapter 7 may be the right option. It allows you to discharge most unsecured debts without the pressure of ongoing payments, though you may risk losing some non-exempt property.

Act Quickly To Avoid Case Dismissal

Missing payments without taking action can lead to dismissal of your case. That would end bankruptcy protection and reopen the door to collection, foreclosure, or repossession. By acting quickly, you keep control of the situation.

A drop in income is stressful, but with the right strategy, you can adjust your plan and stay on track toward discharge.

Temporary Vs Permanent Income Changes

Not all income changes affect your Chapter 13 case the same way. The trustee and court treat temporary setbacks differently from permanent shifts. Knowing the difference helps you respond appropriately.

Why This Distinction Matters

Bankruptcy courts know life doesn’t stay the same over three to five years. A temporary hardship doesn’t mean your plan fails, but long-term income loss may require major restructuring.

Similarly, a one-time raise doesn’t necessarily change your plan, while a permanent salary bump almost certainly will.

The Takeaway

Knowing whether your income change is temporary or permanent gives you and your attorney a clear roadmap. It’s the key to staying proactive instead of scrambling to fix missed payments.

Taking Control Of Your Life During Chapter 13

Chapter 13 bankruptcy is designed with flexibility because life changes over three to five years. Raises, job losses, and unexpected financial shifts all happen, and the system allows for adjustments when they do. The key is knowing how to handle those changes before they threaten your case.

For many people in Austin, Texas, the biggest challenge isn’t the income change itself, it’s figuring out what to do next. Should you modify your plan, request a temporary break, or convert to Chapter 7? These aren’t questions you should answer alone.

That’s where you need skilled guidance. Many filers search for a “bankruptcy lawyer near me” when they feel stuck, but reaching out sooner gives more options. An Austin bankruptcy attorney can help you review your budget, explore plan modifications, and make sure your case stays on track.

If your income has changed and you’re unsure how it impacts your Chapter 13 case, now is the time to act. Contact Austin Bankruptcy Lawyers, a Division of Kannon Moore Law. Together, we’ll find the right path forward and protect the progress you’ve already made.