What Happens If You Get a Raise or Bonus During Chapter 13 Bankruptcy?

You are in the middle of a Chapter 13 plan. You have been making your payments every month. Then something good happens. Your boss gives you a raise. Or you get a bonus at work. You should feel happy. But instead, you feel worried.

You may be asking yourself a scary question: "Does this mean my trustee will take my extra money? Will my plan payment go up?"

This is one of the most common questions we hear from people in Chapter 13. The good news is that getting more money is not a bad thing. But it does help to understand how it works. This article will explain what happens if you get a raise or bonus during Chapter 13 bankruptcy in North Carolina.

The Short Answer

A raise or bonus during Chapter 13 does not automatically change your plan. Your plan payment stays the same unless your plan is modified or the court orders a change. But a large or lasting increase in income can matter. The trustee may ask the court to raise your payment so more money goes to your creditors.

Small raises usually do not cause a problem. Bigger changes are more likely to get attention. The key is to be honest about your income and talk to your attorney before you worry.

How Chapter 13 Payments Are Calculated

To understand the raise question, you first need to understand how your payment was set in the first place.

In a Chapter 13 bankruptcy, you repay some or all of your debt over three to five years. The amount you pay each month is based on something called your disposable income.

Disposable income is a simple idea. It is your income minus your reasonable and necessary living expenses. Those expenses include things like:

• Rent or mortgage payments
• Utilities
• Food and groceries
• Car payments, gas, and insurance
• Medical costs and health insurance
• Childcare for minor children
• Basic phone and internet

Whatever is left over after these expenses is what you are expected to pay into your plan. That is the money that goes to your creditors.

So when your income goes up, the math behind your plan could change. But it does not change on its own.

Does a Raise Automatically Raise Your Payment?

No. A raise does not automatically increase your Chapter 13 plan payment.

Your court-approved plan stays in place until someone asks the court to change it. This is called a plan modification. A raise by itself does not trigger a higher payment unless the plan is modified.

Here is what usually happens with a raise:

Small raises. A modest cost-of-living raise rarely causes a problem. Your everyday costs often go up too. Things like food, gas, and insurance get more expensive over time. A small raise often just helps you keep up.

Large raises. A big jump in pay is more likely to draw attention. If your income goes up a lot and stays up, the trustee may believe you can afford to pay more to your creditors. In that case, the trustee can ask the court to raise your payment.

The word "projected" matters here. Courts look at your expected income over time, not one single paycheck. A one-time event is treated differently than a permanent change.

What Happens If You Get a Bonus?

Bonuses are handled a little differently than raises because they are usually a one-time payment.

How your bonus is treated depends on a few things:

1. What your plan says. Some Chapter 13 plans include language about tax refunds or bonuses. You need to know what your plan requires.
2. How big the bonus is. A small holiday bonus is different from a large yearly bonus worth thousands of dollars.
3. Whether you are paying back all your debt. If your plan already pays 100% of what you owe, extra money is less of an issue.

In some cases, a large bonus may need to be reported and could go toward your plan. In other cases, it may not change anything at all. This is why it is so important to tell your attorney before you spend it.

Why Honesty Matters So Much

This is the most important part of this whole article.

You must be honest about changes in your income. When you file Chapter 13, you agree to act in good faith. Hiding a raise or a bonus is a serious mistake. It can put your entire case at risk.

If the trustee or court finds out you hid income, the results can be harsh. Your case could be dismissed. You could lose the protection your plan gives you. In the worst cases, hiding money can lead to even bigger legal problems.

The honest path is always the safer path. If your income changes, tell your attorney. Most income changes are easy to handle when you are upfront about them.

Can a Raise Ever Help You?

Yes. More income is not always bad news in Chapter 13. Sometimes it actually helps you.

Here are a few ways extra money can work in your favor:

• You can catch up if you fell behind. If you missed a plan payment, extra income can help you get current.
• You may finish faster. In some cases, paying more can help you complete your plan sooner.
• You get breathing room. A higher income can make your monthly budget feel less tight.

Remember, the goal of Chapter 13 is to get you through your plan and on to a fresh start. More income can make that goal easier to reach.

What About a Drop in Income?

Income does not only go up. Sometimes it goes down. You might lose hours, get laid off, or face a medical problem.

The same rule works in reverse. If your income drops, you may be able to ask the court to lower your plan payment. This is also done through a plan modification.

You are not stuck with a payment you cannot afford. If life changes, your plan may be able to change with it. The key, again, is to talk to your attorney quickly when something happens.

How This Works in North Carolina

North Carolina is a big Chapter 13 state. In fact, the Middle District of North Carolina has one of the highest Chapter 13 filing rates in the country. More than half of all bankruptcy cases filed there are Chapter 13.

North Carolina also has an above-average success rate for completing Chapter 13 plans. A big reason for that success is good communication. People who stay in touch with their attorney and trustee tend to do better.

There is one more thing North Carolina debtors should know. The plan must be proposed in good faith. This is a separate rule from the income math. Even if the numbers technically work out, the court still looks at whether your plan is fair. Trying to keep luxury items while paying creditors very little can cause problems. Being honest about your income is part of acting in good faith.

If you are considering bankruptcy and are not sure which type fits your situation, our guide on Chapter 7 vs. Chapter 13 can help you understand the difference.

How Income Changes Compare in Chapter 7 and Chapter 13

A raise or bonus is mostly a Chapter 13 concern. Here is a simple comparison.

Because Chapter 7 is short and does not involve a repayment plan, future raises usually do not affect it. Chapter 13 is different because it lasts for years.

What Should You Do Next?

If you get a raise or bonus during your Chapter 13 plan, do not panic. Take these calm steps.

1. Do not hide it. Be honest about your new income.
2. Call your attorney first. Talk to your lawyer before you make big spending decisions.
3. Keep your records. Save your pay stubs and any paperwork about the bonus.
4. Keep making your payments. Do not stop your plan payments while you sort things out.
5. Ask questions. A good attorney can explain exactly how your raise affects your plan.

Most income changes are manageable. The people who run into trouble are usually the ones who hide things or ignore the issue. You can avoid that by simply staying honest and asking for help.

Talk to Duncan Law About Your Chapter 13 Plan

If you are dealing with a raise, a bonus, or any income change during Chapter 13, you do not have to figure it out alone. Duncan Law can review your plan, explain your options, and help you stay on track toward your fresh start.

We have helped people across North Carolina through every stage of Chapter 13. You can book a free consultation to get clear answers about your situation.

Call the office closest to you:

• Greensboro: (336) 856-1234
• Charlotte: (704) 563-1224
• Winston-Salem: (336) 245-4294
• Asheville: (828) 348-5252
• High Point: (336) 294-5800
• Salisbury: (704) 297-4000

Duncan Law proudly serves clients throughout North Carolina. If you have questions, you can also contact us anytime.