My personal “definition” of bankruptcy goes something like this: you have fewer assets than liabilities and you contract with an attorney to negotiate payment/payoff options with your debtors, the plan is then presented to a judge for concurrence, and you begin making monthly payments to someone to satisfy your obligation. I thought, perhaps erroneously, that the bankruptcy decree was something like a fixed contract: you agree to a fixed payment schedule that eventually gets you out of the woods and satisfies your debtors to the extent that they’ve agreed to.
My daughter and son-in-law are about to finish up the first year of a five-year Chapter 13 bankruptcy, and two things have happened: their ARM mortgage on their house is about to be reset to a substantially lower rate and payment, and both of them received moderate pay raises at the end of 2011. To the best of my knowledge their home is not included in the bankruptcy except that they had a home equity loan against it that is included in their debts to be covered by the decree.
I dabble in income tax preparation and the kids often come to me for my opinion on financial issues. They’re concerned that the lowering of their mortgage payment, coupled with their wage increases, will leave them open to some kind of unilateral alteration of the decree that will increase their monthly payment on the bankruptcy.
Do you have any thoughts on this? Please tell your wife hello from us. She used to work with my wife.
Thanks for your wisdom – funny how compartmentalized the business of financial management Is. I know taxes and. Little bit about a lot of other aspects but bankruptcy is kind of foreign to me.
Happy to help. Thanks for reaching out to me. By the way, I read your comments you left for others, great advice. Thanks.
The best approach would be for the kids to talk to their bankruptcy attorney soon. A significant change may need to be reported to the bankruptcy trustee and the plan may be changed to consider these new details. Read that as “their payment may go up.”
But before it does tell them to save every extra dollar they can into a savings account to build up their emergency fund. If they let their bankruptcy attorney know and be part of the planning on the trustee notification they can avoid any surprises.
I don’t know anything about their plan but they will need to see if the new and improved income requires the continuation of the Chapter 13 bankruptcy if their plan adjusts to 100% payments from a significant increase in disposable income.
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