What happens if I get a raise at work during a bankruptcy?

Written by S. Arteta and Fact Checked by The Law Dictionary Staff  

Bankruptcy is a proceeding filed by a debtor who do not have enough assets to pay off his debts. A bankruptcy proceeding may be commenced under Chapter 7 or Chapter 13. Both Chapters have different effects on the debtor's assets and the option to choose which to use depends upon the debtor. In filing a bankruptcy case, the debtor is given a fresh start and an agreeable plan to get rid of his debts.

A Bankruptcy filed under Chapter 7 allows the debtor to liquidate all his assets at the time of the filing of the Bankruptcy, the proceeds of which will be used to pay off his debts. In Chapter 13, the debtor will be allowed by the court to retain his assets and to set up a payment scheme to pay off his creditors. In both proceedings, the purpose of the law is to give the debtor a chance to rehabilitate his finances by way of getting rid of his debts.

The effect of getting a raise differs on the kind of Bankruptcy proceeding filed. Under Chapter 7, all of the assets of the debtor at the time of the commencement of the action shall be liquidated and shall be used to pay his debtors. All of said properties will be placed in the custody of a trustee who shall have the task of liquidating the properties of the debtor and to pay the latter's debts. This means to say that all other properties acquired by the debtor after the termination of the bankruptcy is his. All of said properties will not be surrendered to the debtor's trustee.

However, if the Bankruptcy proceeding was commenced under Chapter 13, the debtor has the obligation to surrender a portion of his income, a condition in a payment scheme, to pay his creditors. Therefore, if the debtor received a raise, won the lottery, received a huge inheritance or received any  income from other sources, a portion of which must be given by him to the Chapter 13 trustee. This could only become possible if the Chapter 13 trustee files a request or a motion in the Bankruptcy court for the increase of your monthly contribution. The debtor's monthly contribution depends on his earning capacity. Therefore, it also follows that when he receives a bonus or a raise, said earning capacity is increased. Logically, the capacity of the debtor to contribute in the trust also increases. Nevertheless, there could be chances that the trustee may not file said motion.

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