Debtors considering chapter 13 New York bankruptcy sometimes wonder how to craft their repayment plans when they anticipate significant events that are nearly certain to reduce or increase their incomes. For example, sometimes debtors know that a pregnant spouse will not be working for the beginning portion of the repayment plan but will be able to in the future. Unlike modifying a plan that’s already been confirmed, it’s clear from the outset that the debtor’s income will fluctuate. One option is a “step plan.” What are these?
As they sound, a step plan is one in which the debtor agrees to increase or decrease payments at a certain time often after a certain condition is met. These are “step-up” or “step-down” plans, respectively. Step-up plans work best when the debtor knows that income will be available to make future payments, as in the pregnant spouse example above or when the debtor can credibly show that a raise or a promotion will occur (like tenure for a college professor). Step-down plans are for debtors who expect their incomes to decline during the course of the plan. For example, one spouse might plan on retiring at a certain age irrespective of the bankruptcy.
The key to step plans is to avoid any difficulties that may crop up early in the process. For instance, if a debtor doesn’t receive an anticipated promotion, then the step-up plan will be jeopardized. Preventing the step up in payments from occurring requires modifying the plan before the condition is met, not after. If the debtor doesn’t modify the plan in time, there’s a possibility that his or her case will be dismissed.
Step plans can include multiple “steps” to accommodate debtors’ expected financial situations, and they don’t necessarily need to be triggered exactly when a certain condition occurs. It’s possible to simply raise the required payment in the fourth year of the repayment, for example, even if the debtor doesn’t know when during the third year a promotion will be finalized.
Step plans require careful planning and clear knowledge of the debtor’s future. They should be left to experienced bankruptcy lawyers.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 Bankruptcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.