What If My Income Increases After Filing Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is most often used by individuals with few assets in order to finish proceedings as soon as possible. The reason Chapter 7 bankruptcy is so quick when compared to other bankruptcy chapters is because it more or less lets creditors take what they want to satisfy their debts. Things like real property, cars, and other assets are not off-limits in Chapter 7. It can be a real worry, then, for debtors going through Chapter 7 bankruptcy if they suddenly get an increase in income or otherwise obtain assets since they will also be “up for grabs.”
If your income increases after filing bankruptcy under Chapter 7, a number of different things could happen. In order to qualify for Chapter 7 bankruptcy, you have to pass a “means test,” which determines whether your income is low enough to make you eligible to file for Chapter 7 bankruptcy. For that reason, if your income has dramatically increased, you may have to switch to a different chapter of bankruptcy. No matter the level of income increase, you should always report it to the court and your creditors. Failure to do so could result in having to pay debt on the creditor’s schedule or even a felony conviction.
If you have concerns about your Chapter 7 bankruptcy proceedings, call Young, Marr, Mallis & Associates at (215) 701-6519 and speak to one of our bankruptcy attorneys.
Explaining Chapter 7 Bankruptcy
Chapter 7 bankruptcy is probably the simplest type of bankruptcy and also the easiest to understand. Chapter 7 provides for the liquidation of assets to satisfy debts. “Liquidation” means selling things for cash, which you then pay to creditors.
One of the benefits of Chapter 7 bankruptcy is that you have to do very little. Other chapters will require you to submit payment plans and other forms. You do not have to do that with Chapter 7 bankruptcy. Another benefit is that Chapter 7 bankruptcy resolves itself much, much quicker than other types of bankruptcy. For example, Chapter 13 can take anywhere from three to five years to resolve, while Chapter 7 bankruptcy is usually finished in six months.
The downside of Chapter 7 bankruptcy is that creditors can more or less take what they want. Very little, if anything, is off limits in Chapter 7 bankruptcy. So, if you have a sudden windfall, you may think that creditors can dip into that to satisfy their debts.
Additionally, you need to pass what is called a “means test” in order to be eligible to file under Chapter 7. If you have too many assets, you will have to file under a different Chapter.
What Happens When My Income Increases During Chapter 7 Bankruptcy Proceedings?
If your income increases during Chapter 7 bankruptcy proceedings, there are a couple of things you can and should do. First and foremost, you should be happy at the fact that your prospects appear to be improving. More income is always a good thing, and many times, creditors may simply be pleased to hear that their source of repayment is doing better financially. You should, however, still inform all relevant parties of your improved situation, and you may need to submit some forms during this process. Speak with our bankruptcy lawyers about whether you need to inform certain parties or not.
If you expect an income increase somewhere down the line when you initially file for Chapter 7 bankruptcy, you need to inform both the court and your creditors about it. This includes things like inheritances and future salary increases that may not have happened yet but will have happened or be in your possession at some point after bankruptcy proceedings start. Some of this income may be able to be collected by creditors as part of the “bankruptcy estate,” but other increases may be off limits.
If you have an unexpected increase in income soon after filing under Chapter 7, you should talk to our lawyers immediately, as this could have implications for whether you pass the Chapter 7 means test. You also need to inform the court and creditors because failure to do so has dire legal consequences.
Can Creditors Collect My Increased Income in Chapter 7 Bankruptcy?
When you file for Chapter 7 bankruptcy, it is based on your financial situation when you make the filing. Accordingly, if you get more income later on, creditors may not be able to access it as it is not displayed in the filings. Creditors would have to request for the repayment schedule to be changed to reflect your new income.
Under other circumstances, creditors may be able to access increased income. For example, if the increased income is from an asset, like a business, listed in your Chapter 7 filings, creditors can collect that income to help satisfy their debts. Creditors can also collect income that you were already going to get when you filed but you did not physically possess at the time.
In some instances where you have a dramatic increase in income, you may have to swap to a different Chapter of bankruptcy, like Chapter 13. The reason for this is that a large, unaccounted-for income increase can alter whether you qualify under the Chapter 7 means test. Chapter 7 bankruptcy is focused on people with few assets, and you now have a lot of assets. Switching chapters of bankruptcy can be very tricky, so you should let our bankruptcy lawyers handle it.
What if I Do Not Report Increased Income Under Chapter 7 Bankruptcy
Some plaintiffs may be tempted to hide an increase in income from both creditors and the court. This is a terrible idea, and you should not do it.
Any income may alter your ability to continue under Chapter 7, and the court and your creditors need to know about that. If you do not tell creditors about an increase in income, they have the right to have your bankruptcy proceedings ended and start collecting debt on their own schedule. This can be catastrophic for debtors who were previously under great pressure before filing for bankruptcy.
In the most serious cases, you could even be charged with bankruptcy fraud – a felony – and you could end up with enormous fines or spend time in prison.
Have a Conversation with Our Bankruptcy Attorneys About Your Situation
Young, Marr, Mallis & Associate’s bankruptcy attorneys are ready to sit down with you and discuss your situation when you call (215) 701-6519.