The Short Answer
If you get a new job or a significant pay increase while your bankruptcy case is open, you are required to report that change to your attorney — and we are required to report it to the court. What happens next depends on how much your income changes and whether you're in a Chapter 7 or Chapter 13. A small bump in pay may not affect your case at all, but a major income jump in a Chapter 7 could trigger conversion to Chapter 13, and in a Chapter 13 it could mean higher plan payments.
Most who file a bankruptcy are doing so to get debt free and are looking at life as a second chance and a fresh start. In many cases this is not just regarding a bankruptcy but a change in every aspect of life, which includes new employment. So what happens if you change jobs while you are in a bankruptcy?
It is our due diligence to alert the court of any changes in your circumstances; so when you get that new job, we’ll have to tell the court about it and report your anticipated wages. It will all depend on how much of a fluctuation in your pay that you have as to what happens next. Let me give you a few circumstances:
- You file a Chapter 7 bankruptcy, and report that you make $2,000 per month when you file the bankruptcy. You switch jobs and now you make around $2,200 per month. The bankruptcy Trustee will likely do nothing, since your income did not change all that much. Now let’s say when you changed jobs, you started making $3,500 per month, this could be a problem. The Trustee could look at it as if you have additional income to pay back your creditors and can convert your case to a Chapter 13 bankruptcy.
- Next scenario, you file a Chapter 13 bankruptcy, report that you make $2,000 per month and that income is used to calculate your plan payments. If you make only a slight amount higher than originally reported then it most likely will not be a big deal, but let’s say that you jump to a significantly higher income; that could be a problem. The Trustee will likely increase your plan payments because at this time you have the additional income to show that you can make a higher payment. But, let’s say that the pay decreases, can you pay a lower amount? Sure you can, IF your plan will allow it. This process is much more difficult, and you will definitely need to discuss whether that is an option for your case with your bankruptcy lawyer.
The bottom line is, as easy as it would be to keep your change of income to yourself, you need to contact your attorney and make the appropriate changes to your budget and discuss what your options are going forward for when you have to file that amended budget with the court. Remember you sign off under penalty of perjury that you have given all of the correct information and you will disclose any changes needed. Should you not, and the court find out, it could result in the dismissal of your bankruptcy case.
Key Takeaways
- You must disclose any job change or income increase to your bankruptcy attorney as soon as it happens — concealing it is considered perjury.
- In a Chapter 7, a modest income increase is usually ignored by the trustee, but a large jump can result in your case being converted to a Chapter 13.
- In a Chapter 13, a significant income increase will likely cause the trustee to seek higher monthly plan payments since you now have more ability to repay creditors.
- If your income decreases during a Chapter 13, you may be able to lower your plan payments, but only if your plan allows for it and your attorney petitions the court.
- Failing to report an income change — and having the court discover it — can result in the outright dismissal of your bankruptcy case.
- Contacting your attorney the moment your employment situation changes gives you the best chance of adjusting your case without serious consequences.
Attorney Insight
The mistake I see most often is clients who land a better job mid-case and quietly hope no one notices — thinking it's good news they can keep to themselves. But trustees in our North Carolina districts are diligent about reviewing income changes, and when they catch an unreported increase (which they often do through payroll records or amended tax returns), the consequences go well beyond a higher payment — it puts the entire case at risk of dismissal for bad faith. In a Chapter 13, I've had to file plan modifications to address both increases and decreases in client income; the process is manageable when we know about the change early. The worst outcomes I've seen were always cases where the client waited months to tell us.
