You have a good career that gives you a decent income, from either a job or perhaps a small business. However, because of circumstances beyond your control, maybe a lengthy illness, a period of unemployment, or a business downturn, you find that your debts are too big for you to handle on your own.
Therefore, you decide that filing for Chapter 13 Bankruptcy is the best option.
Your three to five year payment plan
Chapter 13 is the arrangement in which your debts are consolidated and reorganized so that you can dispose of all or part of them in easy monthly payments over a period of three to five years. The plan is based on your financial situation at the beginning of the repayment period. But a recent court case suggests that the agreement may not be the end of it under certain circumstances.
Does the plan stay as agreed upon and approved?
A recent ruling handed down by the 7th Circuit Court of Appeals suggests that, even if the five-year repayment period has passed, a bankruptcy trustee, charged with collecting repayments on behalf of the creditors, can call for a modification of the agreement if the debtor experiences an increase of income during the three-to-five-year repayment period. The change would be allowed even if the demand is made after the reimbursement period has passed.
The ruling overturns decisions by both the bankruptcy court and the district court that disallowed such modifications. Currently, the case is back in the district court, which is considering whether the facts of the case actually allow for a change in the repayment plan retroactively. The court is not only taking into account the increased income but also increased expenses because the debtors underwent a divorce during the repayment period.
What does this mean for you?
Let us suppose that during the three-to-five-year repayment period your financial circumstances take a turn for the better. You get a big promotion at your job or get a better job, increasing your salary. Your business starts to take off and expand, boosting your profits. You might even write a best-selling book with a movie deal and find yourself suddenly well off.
Unfortunately, since the trustee can and will demand copies of your tax return, he will be able to hold out his hand for bigger payments on your Chapter 13 repayment schedule.
This is only one example of the quirks or challenges individual filers experience based on their specific circumstances. From the start, you should have experienced counsel on your side.
During your bankruptcy period, you are going to need the continued guidance of an experienced bankruptcy attorney - like if you are suddenly called upon to shell out more money on a matter you thought was resolved.