What Happens if My Income Decreases or My Expenses Increase During a Chapter 7 Bankruptcy?

Since there is no debt limit for individuals in Chapter 7 bankruptcy, a worsening of your financial situation or increase in debt will not affect your eligibility. Chapter 7 bankruptcies are considered no-asset cases, and debtors have an ongoing duty to disclose financial information and update your information if the filings you previously submitted are no longer accurate. This is especially true in Chapter 7, because your income level determines whether you qualify.

Any anticipated income changes should be noted at the time of filing your bankruptcy petition. For example, if you expect to be laid off at a certain time, you should include this information. Be sure to follow up with documentation of this change once it occurs. At the Section 341 meeting of creditors, the bankruptcy case trustee will ask you about any income changes and decide whether it will affect your Chapter 7 case.

Keep in mind that when filing amended schedules, you must notify the trustee and any affected party. The Bankruptcy Code has always defined property that should be included in the bankruptcy estate very broadly. Section 1306 of the Code expanded on this, noting that any such properties acquired after the commencement of the case but before the case is closed, dismissed, or converted, must also be included in the bankruptcy estate.

Even the receipt of unexpected items like bonuses, inheritances, and life insurance, must be reported. There may be serious repercussions if a debtor does not comply with the disclosure rules. The court can revoke a chapter 7 discharge obtained fraudulently, and failure to disclose a financial asset could lead to criminal prosecution for bankruptcy fraud.

Bankruptcy Means Test

Chapter 7 petitioners must file their Statement of Current Monthly Income, and if their monthly income is higher than the median in their state, a Means Test Calculation as well. The means test is used to determine how much income you will have available to pay debts over the next five years. It contains an extensive list of expenses that can be deducted from your income, including food, clothing, medical expenses, housing and utilities, transportation, taxes, court ordered payments, childcare, payments on secured debt, etc.

Many of these expenses could change during your bankruptcy. Depending on how close you were to the income limit for Chapter 7, a trickier issue may arise if your income increases or expenses decrease. If your situation changes enough that you fail the means test, the case can be converted to a Chapter 13 bankruptcy.

Speak with a knowledgeable Texas bankruptcy lawyer for guidance

For more information about what type of bankruptcy may be right for you, consult an experienced Texas bankruptcy attorney at Marcos D. Oliva, P.C.

Marcos Oliva
About the Author: Marcos Oliva
Marcos Oliva is the principal attorney at Oliva Law. He is admitted to practice law in the State of Texas, the United States District and Bankruptcy Courts in the Southern District of Texas, and the United States Patent and Trademark Office.