Recently on our legal forum a user asked, “I am about one year into my three-year Chapter 13 debt repayment plan. Unfortunately, due to unforeseen circumstances, I will not be able to complete my plan. I was wondering what options I might have? I do not want to go through all of this a second time.”
Overview of Chapter 13 bankruptcy
Chapter 13 bankruptcy allows a debtor to repay a portion of their debts over three or five years by completing a debt repayment plan. This repayment plan outlines how the debtor will repay their creditors by making monthly debt payments.
As you have figured out, however, three or five years can be a long time and a lot can happen to debtors during this process. For example, debtors may lose a job, become seriously ill, get divorced, or have a loved one die.
What can you do if you can no longer make Chapter 13 debt payments?
Fortunately, your question is a common one. What can you do if you can no longer make the debt payments for your Chapter 13 repayment plan? The good news is this question is not new and the court has several options.
- Ask the court to suspend your payments.
Your first option, if you cannot make debt payments, is to petition the court for them to suspend your payments. Note, you will need a good reason for the suspension, the trustee will have to agree, and the suspension cannot be for too long (generally no more than 1 or 2 months).
Also, you mentioned you had a three-year plan so this might not apply to you, but debtors with a five-year plan will not be able to extend past 60 months. With this in mind, if the suspension is allowed, then debtor may be required to pay a bit more for each of the remaining months.
- Ask for a Chapter 13 debt modification.
The second option if you cannot make your Chapter 13 debt payments is to ask the court to modify your current monthly payment. As with a suspension, a modification will only be granted if you can show good cause. For example, if your employer cut your pay or hours substantially and your income is much lower than it was when the plan was first proposed.
Consider, however, a modification should only be requested after discussing your case with a bankruptcy lawyer. You will also be required to submit a new budget to the court and receive approval.
- Determine if you can convert your case to Chapter 7.
Finally, under some conditions, you may be allowed to convert your Chapter 13 bankruptcy case to a Chapter 7 case. For example, if you became injured and you are no longer able to work but now draw Social Security Disability Insurance benefits, you may qualify to convert your case and have your unsecured debts immediately discharged.
Finally, if all else fails you may have only one option: have the court dismiss your case and attempt to file another bankruptcy case sometime in the future.
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