In the case of Midgley, Robert and Karen; In re,the bankruptcy court modified the debtors’ Chapter 13 bankruptcy plan to seize $76,000 because of the debtors’ failure to report income changes. When the debtors filed for Chapter 13 Bankruptcy in 2005, they had a monthly income of $5,972 and $5,517 in expenses.

The bankruptcy court ordered the debtors to pay $455 per month over the course of three years, to report to the bankruptcy trustee if their gross income exceeded 10 percent of the amount they reported at filing and to provide the bankruptcy trustee with their tax returns. Unfortunately the debtors did not give the bankruptcy trustee their 2005 tax return until 2007 and their 2006 return until 2008.

After reviewing the returns, the bankruptcy trustee determined that the debtors’ gross income exceeded their disclosed income by 31 percent in 2005 and 35 percent in 2006 totaling more than $76,000. The bankruptcy court ruled that because the debtors failed to report the changes in their income in a timely fashion that the bankruptcy court needed to change their plan in order to capture the additional $76,000 for creditors.

Changes in income need to be reported immediately to the bankruptcy trustee so that debtors can avoid catastrophic changes to their Chapter 13 bankruptcy plans . It’s important to work with a professional bankruptcy attorney so that you can properly navigate pitfalls such as the failure to report income changes to the bankruptcy trustee.