What Happens if my Family Income
Changes While I am in Chapter 7
Chapter 7 relief is designed to offer debt relief for people who do not have enough monthly income to pay their bills. When you file a Chapter 7, all of your income and expenses, assets and liabilities become part of your bankruptcy estate. The bankruptcy law provides that upon the filing of your case, a government appointed trustee assumes powers to administer your bankruptcy estate.
The United States trustee appoints and supervises both Chapter 7 and Chapter 13 trustees. However, the United States trustee remains involved in your case - this is especially true in Chapter 7 cases. In a Chapter 7, the United States trustee looks carefully at your income to see if you have enough income to support a Chapter 13 repayment plan.
Remember that neither the United States trustee nor the Chapter 7 trustee has the power to dismiss or otherwise force a change in your case - only the Bankruptcy Judge has that power. However, the attorneys who work for the United States trustee are experienced lawyers who are backed by the United States government and litigation with the United States trustee can be expensive and time consuming. If you can avoid disputes with the trustee, you should.
Changes in Income Prior to Discharge
and Six Months Thereafter Must be Reported
Most Chapter 7 cases remain active for at least five months, although they can remain open much longer. The Bankruptcy law provides that any changes in your income prior to the issuance of a Discharge Order by the Judge and continuing for six months thereafter needs to be reported to the Chapter 7 and United States trustees.
The United States trustee has a stated policy of trying to force Chapter 7 debtors into Chapter 13 repayment plans. The means test evaluation process looks backwards - increases in your income after filing can also result in a motion to dismiss or a motion to convert.
When you report an increase in household income to the United States trustee you can expect the trustee to open an extensive examination that will require you to provide documentation about your or your spouse’s new income. If the increase in houseold income is significant, the U.S. Trustee will use the means test formula as well as a budget analysis to argue that your case ought to be converted to Chapter 13.
If your spouse did not file with you, the U.S. Trustee should only consider that part of your spouse’s current or new income that constitutes a contribution to your household. This question - what constitutes a non-filing spouse’s contribution to the household - can be an area of disagreement between our firm and the United States Trustee.
If you foresee that there could be a change in your household income, we encourage you to contact our office to discuss what might happen and to discuss a strategy to deal with this change in income. We encourage you to call our office as soon as possible if you discover that either you or your spouse will be receiving increased income.
Similarly, if you or your spouse will be earning less money going forward, let us know that as well. If the U.S. Trustee has taken an interest in your case, your reduction in income could be an important consideration to end the trustee’s investigation.
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