A Chapter 13 bankruptcy is designed to allow debtors to repay their debts to creditors over time in a manner they can reasonably afford. To do this, the court uses the debtor’s financial details to determine how much they can afford to pay and which creditors will receive payment. Since the financial details are the crux of a successful Chapter 13 filing, changes to these details along the way can influence the case.
One of the biggest factors used to determine how much will be repaid in a Chapter 13 filing is the debtor’s disposable income. This is income that is leftover after all essential living expenses have been paid. Changes to the amount of disposable income are very likely to produce changes in how much the debtor will be required to pay as part of their Chapter 13 repayment plan.
For example, an increase in income may lead to additional disposable income. The court would then recalculate the repayment plan, which could yield an additional amount to be repaid to creditors each month. The good news is that debts may be repaid faster, leading to a quicker exit from Chapter 13; the bad news being the overall increased payment requirement. However, the repayment plan sensitivity to changes isn’t always bad. If the debtor was to lose their job or suffer unavoidable debt burdens, such as medical debt, the rule would also allow for a reduction in the monthly payment requirement.