Can the Chapter 13 Bankruptcy Trustee Take My Yearly Bonus?

Whether the bankruptcy trustee will take your bonus depends on a number of factors.

Your yearly bonus is disposable income that the can be used by the Chapter 13 trustee to pay your creditors. Whether the trustee takes your bonus may depend on the terms of your plan, the plan confirmation order, and the procedures in effect in your district.

(To learn more about the repayment plan and how disposable income affects your plan payments, see  The Chapter 13 Repayment Plan.)

Does Your Plan Already Account for Your Bonus?

Whether your plan already accounts for your bonus usually depends on whether you always receive a set bonus, or whether your bonus changes from year to year.

Consistent bonus.  If your yearly bonus is consistent, the amount should have been factored in to your income figures when the amount of your plan payments were determined. Whether you make higher monthly payments or your bonus is paid in to the plan when it is received will depend on the terms of your plan and the confirmation order.

Bonus is inconsistent.  If you do not always qualify for a bonus or the amount of the bonus is not consistent, the confirmation order could provide for the bonus to be paid into the plan if and when it is received and your plan adjusted accordingly. Even if it does not, some jurisdictions require you to report increases or decreases in income over a set percentage to the trustee and modify your plan to account for the changes.

The Bankruptcy Trustee's Power to Request Plan Modification

Under the bankruptcy law, the trustee can request that the plan be modified and the payments adjusted to include the bonus income. Any bonus you do receive is income which you will need to report on your tax return. In some districts, the trustee reviews all tax returns yearly and plan payments are adjusted if the income goes up or down. (Learn more about the  powers and obligations of the bankruptcy trustee.)

Look to Your Plan Confirmation Order

Generally, the confirmation order is controlling. If the order requires you to provide the trustee with your tax return for the purpose of reviewing income, the bonus income will be discovered and payments adjusted if the increase is significant. If the confirmation order does not require you to provide the trustee with your tax returns and you are not required to notify the trustee of changes in your income, it may be sufficient to just stay current on your plan payments.

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