Do I have to report severance pay in a Chapter 13 bankruptcy?

Unfortunately, the answer to this question is not completely clear. Every month, you make a payment of some amount - we'll use $1,000 as an example -- and that money goes to pay your creditors. The reason you are paying that amount is that, when you filled out the chapter 13 form plan and submitted it to the court for approval, $1,000 was your "projected disposable income" that would be received during the plan period. The Bankruptcy Code doesn't specifically require that plan payment to be re-adjusted during the period of the plan (meaning during the 3 to 5 years that the plan will cover).

However, that doesn't mean that you should just pocket the money and go about your business. Your plan can be modified after confirmation, and the chapter 13 trustee can ask the court to do such a modification. If you don't tell the trustee about the severance and they find out some other way (like, by seeing the income reported on your income tax return, which they get a copy of), you risk a variety of negative effects, like lawsuits to revoke a discharge that you might later get (meaning your whole bankruptcy was for naught).

Of course, if you tell the trustee about the severance, they might move for a modification. One course of action your might follow would be to tell the trustee about the severance and explain why you require that money for you and your dependents' "maintenance." So, if you need to fix a leaky roof, the trustee might be persuaded that modification would be inappropriate.

Hiding the money is a really bad idea. A lawyer could help you frame the disclosure in a way that would increase the likelihood of convincing the trustee that you need this money and that it shouldn't go to creditors.

Hope you found this information helpful.



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