How Income Changes Impact Your Chapter 13 Orange County Bankruptcy Case

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In this article, you can discover…

• How a “material change” in income is understood by trustees.
• What happens if your disposable income decreases during bankruptcy.
• How an attorney can help you modify payment plans as your resources change.

What Qualifies As A “Material Change” In Income?

Now we’re in a vague realm. What is “material”? There aren’t any posted standards and there’s no case law that states “this amount is material and this amount is nominal.”

However, I do remember attending a continuing legal education program conducted by the Chapter 13 Trustee in Orange County, a nice guy named Amran Cohen. Someone in the audience posed a similar question. In response, he stated that if there were a roughly 25% income increase, then he would ask the judge to increase plan payments.

The percentage also depends on your initial income level. If you’re working at a minimum wage job and you get a 25% raise, this might not be all that great an increase in income, and may not attract the attention of a Trustee. But if you’ve got a job that’s paying $200,000 and you get a 25% raise, that’s an additional $50,000, which will certainly get the Chapter 13 trustee’s attention.

If the Trustee sees a “material change,” the Trustee will know it. It sort of reminds me of the famous statement made by Supreme Court Justice Potter Stewart when the Court was reviewing cases on pornographers. He said he couldn’t really define pornography, but he said, “I know it when I see it.”

How Does The Court Calculate Disposable Income?

That’s a little bit more complicated. This comes up, for example, if we need to modify the plan a little later in the case. A simple example illustrates how this can arise, although there are lots of other examples that can be posed. Let’s say your car dies. Oh no! What are you going to do? You can’t get to work! You’ll have to go buy a new car. But if you are going to take out a loan to buy a car, you will have to get the Bankruptcy Judge’s permission.

The reason for that ― aside from the fact that that’s what the law is ― is that the money you will divert to make car payments would have been used to make Chapter 13 plan payments. In essence, what you’re asking the Court to do is let you shrink the amount of money that’s going to the creditors so that you can get a car. (Be careful. If you tell a Judge that you desperately need a Rolls Royce, that probably is not going to be granted.)

Your lawyer will file a motion for authority to incur debt and will simultaneously file a motion to modify your plan, typically to reduce plan payments, to accommodate your new car payments.

Because yes, your income might have gone up, but your expenses might have gone up as well, especially given the ravages of ongoing inflation. Yes, it seems to be coming down a little bit, but we still have this multi-headed hydra of inflation that’s hitting us all over the place.

In the motion for authority to incur debt, we must list your current income, which may be different from the income you had at the beginning of your plan. We’ll list your current expenses, which may also be different from the expenses you had at plan inception. The difference between income and expenses is disposable monthly income – the amount you have available to make plan payments. The new car payment will reduce your disposable monthly income. If the resultant disposable monthly income is less than your current plan payment, we will file a motion to reduce plan payments due to changed circumstances.

Standard Disclaimer

Thank you for watching these videos! I hope they’ve been very helpful. If you are in Los Angeles County or Orange County, I’d be delighted to be your bankruptcy attorney.

But if you’re not in those counties, or if you’re in another state, I cannot help you. In fact, I cannot give you legal advice if you are in another state, as I am only licensed to practice law in California. If I give you legal advice and you’re, let’s say, in Mississippi, then I will be practicing law in Mississippi without a license, which is a crime.

So, while I’m delighted that people throughout the country are watching these videos (and thank you very much for the kind messages that I receive occasionally via email), these videos do not constitute legal advice nationally – or even locally.

Still Have Questions? Ready To Get Started?

For more information on Chapter 13 and income changes in Orange County, an initial consultation is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.