If my salary changes after I file Chapter 13, what impact would this have on my monthly obligations?

There is no simple answer to this question, so this may take a bit.

Under the bankruptcy code, you may be required to contribute your projected disposable income toward plan payments for the first 36 months of the plan. (I say "may" because the code [11 U.S.C. � 1325(b)(1)] only requires you to contribute your full disposable income to plan payments if the trustee or a creditor require it.  Our experience is that the trustee always requires it, at least at the start of the plan.)  Whether changes in your salary will require changes in your plan payment depends on when and how much the salary changes, as well as other changes in your circumstances.

• When your income changes.
  1. Before the plan has been confirmed. After the case has been filed, but before the court has entered an order making it binding on creditors (which may take about 6 months), the Trustee will be looking closely at your disposable income and will require that plan payments be consistent with your disposable income.
  2. After the 36th month of the plan. If your plan is longer than 36 months in length, the code makes no specific requirement that disposable income be contributed to the plan beyond the first 36 months. Locally, the trustees have accepted this limitation and have not asked for increases in plan payments based on increased income after the 36th month.
  3. After your plan has been confirmed, but within the first 36 months. There is some authority to suggest that the plan is confirmed based upon projected disposable income and that changes in your income do not necessitate changes in your plan payments. Our experience has been that the trustee does not accept that view and will ask that your payments be adjusted if your disposable income changes significantly. If this view were rigidly adopted, the trustee would have to monitor your income closely. The trustee does not do this, and there is authority to suggest that this is beyond the scope of his duties. Locally, one trustee has been requiring that debtors provide him with copies of income tax returns for the first two years of the plan. If he finds a significant increase in income, he asks for an amended budget to determine whether disposable income has increased. If it has, he asks for an increase in plan payments.
• How much the salary changes, and other changes.
  The plan payments are based on disposable income, not just income. Disposable income is that portion of your income left over after you meet all of your reasonable living expenses (all of your expenses including not just rent/mortgage, utilities, food, clothing, but reasonable allowances for recreation, etc.). If your income goes up, but so do your expenses, there would be no change in disposable income. If your disposable income does go up significantly, the trustee may ask for an increase in your payments. If your payments increase, and if the length of your plan is greater than 36 months, the increase in payments is usually accompanied by a reduction in the length of the plan. In such a case you would simply be paying the plan off sooner.

Can I sell a car which secures a debt being paid by my Chapter 13 plan?

The short answer is "yes", but it may not be practical.

If you do sell a vehicle which is being paid by the plan, the debt secured by the vehicle will no longer have to be paid in the plan. However, payments will still go to the secured creditor unless you modify the plan.  You may ask that your plan be modified to remove the car payment, which may allow the plan to be reduce in length or the amount of payments.  Even if you modify your plan, you will still be required to contribute your disposable income to the plan during the first 36 months.

It has been our experience that it is usually not practical to sell a vehicle being paid for by the plan. It is rare that a vehicle is worth more than the balance owed on the loan. In order to sell the vehicle, the full balance owed to the creditor must be paid--not the reduced amount that must be paid to the creditor under the plan. The full balance is greater than a buyer would be willing to pay.

If you decide that you no longer want the vehicle, it is generally possible to give it back to the creditor even if you cannot find a buyer. In that case the plan can usually be modified to remove payment of the vehicle from the plan and possibly reduce the length of the plan or the amount of the payments.

Can I pay off my Chapter 13 plan early?

You can pay ahead a few months on your plan without any problems. Whether you can pay the entire balance of you plan off depends on how many months you are into your plan, and how much of the debt your plan actually pays:

1. You can if your plan pays off 100% of all of your bills.  If your plan pays all of the creditors 100% of the debt, you can pay off your plan at any time.  Most Chapter 13 plans significantly reduce the amount of money you have to pay back to creditors in order to discharge all of your debts.
2. You may not be able to if you have completed less than 36 months of your plan.  If you have completed less than 36 months of your plan, the Chapter 13 trustees may object to an early payoff.  This is because � 1325(b) of the code allows the Trustee and unsecured creditors to require that debtor pay all of their projected disposable income for three years into the plan. The trustees that object to early payoff believe that they should be able to increase the amount paid into the plan if the debtor's disposable income increases during this three year period, and if an early payoff is allowed they will not be able to do this.
   However, a number of cases supported the granting of a discharge where the plan has payments are made earlier than the 36th month:
   • Matter of Casper, 154 B.R. 243 (N.D.Ill. 1993) [Debtors discharged their obligation under plan by paying to trustee sufficient funds to cover the 10% owed on unsecured creditors' claims as provided by plan; trustee's subsequent motion to modify plan was denied.]
   • In re Smith, 237 B.R. 621 (Bkrtcy.E.D.Tex. 1999) [Debtor was entitled a discharge once she used gift from her family to make lump sum payment of all monies due and owing and expected to be paid under her plan even if received several months before minimum 36-month term of plan.]
   • In re Easley, 205 B.R. 334 (Bankr.M.D.Fla. 1996) [Debtor moved to accelerate plan payments, using money loaned by debtor's parents and the Trustee objected. The court held that debtor was not required to increase plan payments with loaned funds.]
   •  Matter of Koerperich, 5 B.R. 752 (Bkrtcy.D.Neb. 1980) [Debtor who files a zero-payment plan has completed the "payments under the plan" and is eligible for a discharge.]
3. You probably can if you have completed 36 months of your plan.  If you are in the 36th or later month of your plan, the Chapter 13 trustees will usually accept payment of the balance of the plan payments at any time.

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What is the balance of my Chapter 13 plan?

In most of cases filed by our office, you can easily calculate the balance you will need to pay to complete your plan. Look on the first page of the order confirming the plan which was mailed to you after your plan was confirmed. Find the amount of your payments in paragraph 1 (Future earnings or income) and the length of the plan in paragraph 2 (Duration). Multiply the amount of each plan payment from paragraph 1 times the number of months which have not been paid from paragraph 2. If your plan has been modified, you will also need to check each modification order to see if the payment amounts or duration have been changed. There is no deduction in interest for an early payoff or any early payoff penalty.

Our office does not handle payments or the records of what payments have been made. If you want a statement of payments made or of the balance due, you will need to contact your trustee directly.

This page was last revised: 10/11/16