Indiana residents struggling with financial problems often find relief by filing for Chapter 13 bankruptcy. Part of a Chapter 13 action is a repayment plan. This plan is submitted to the court for approval and confirmation. It requires the bankruptcy debtor to make weekly or bi-weekly payments to a trustee. The trustee pays the debtor’s creditors according to the terms of the plan. Payments are made directly or through payroll deduction.
Although there are benefits that come along with a bankruptcy filing, it is also important for debtors to follow the rules carefully to avoid losing those benefits. It is vital to be aware of rules regarding repayment plans, since violating the rules can have serious consequences. It is important to report any change in income that occurs during the Chapter 13 action immediately, because creation of the repayment plan is based on several factors. One of these factors is the ability to pay the debt based on income.
The purpose of this rule is not just to increase the debtor’s payments if income increases. Sometimes decreases in income occur during the repayment period if a job is lost, work hours are lower, or some other unforeseen unfortunate circumstance arises. Decreases in income must be reported as well, and they could result in lower payments for the debtor.
As a last resort, if income becomes too low during the repayment plan, the debtor can convert to a different type of bankruptcy, a Chapter 7 liquidation case.
The consequences of not reporting a change in income are severe. The bankruptcy protection may be reversed and the debt no longer discharged. The debtor can even incur criminal charges. A change of income that is deliberately withheld during a Chapter 13 payment plan constitutes bankruptcy fraud. A debtor who commits fraud can be fined $250,000 and sentenced to up to five years in federal prison.