What If I Cannot Repay My Chapter 13 Repayment Plan?

If your financial situation has changed since you filed for Chapter 13 and your repayment plan was approved, you might wonder what will happen. As a lawyer, like a bankruptcy lawyer from The Law Offices of Ronald I. Chorches, might explain to you, there are various options available to people who have experienced a decrease in income during Chapter 13 bankruptcy. 

It is very important to understand that you should not wait too long to take action. By doing so, your options may be significantly limited. If you cannot afford to pay your Chapter 13 payments because your income has been reduced, please call a bankruptcy lawyer as soon as possible. 

Understanding Chapter 13 Repayment Plans

Chapter 13 bankruptcy is a debt-relief option that is best suited to people who have a regular source of income, but is in debt and cannot make their payments. Debtors must have a regular source of income to qualify, and enough disposable income to make payments on a Chapter 13 repayment plan. 

The benefits of Chapter 13 bankruptcy is that the debtors can keep their home and assets (as long as they can afford their mortgage), while paying creditors over a period of three to five years. Once a person has filed for Chapter 13 bankruptcy, they must begin making payments within 30 days, according to an approved repayment plan. The repayment plan is based upon your current income, the debt you owe, and the length of the plan. It must be paid every month and has to be approved by the bankruptcy court. 

Options When You Cannot Afford Your Chapter 13 Payments

It is possible for your income to change, thereby resulting in the inability to pay your Chapter 13 payments. Some options that a bankruptcy lawyer might recommend include:

  • Request a modification of your repayment plan. If your financial situation has changed but you still have disposable income, you can ask the court to reduce the payments. The court must approve the modification and you will be required to substantiate the changes in your financial situation. 
  • Convert to a Chapter 7 case. If you have lost income and cannot make Chapter 13 bankruptcy payments, you can convert your case to a Chapter 7 bankruptcy case as long as you meet certain requirements. You should talk with a bankruptcy lawyer first because there could be alternative options. 
  • Ask for a suspension of payments. In the event that your reduction of income is temporary, you can ask the court to suspend your payments for a period of time. A lawyer can do this for you on your behalf. 
  • Extend the length of your plan. If your plan is for less than 5 years, or 60 months, you might consider extending the time in which you have to make payments. Plans cannot exceed 60 months, but if yours is for 36 months, you could decrease your payments by extending the plan. 
  • Request a discharge based on hardship. If you meet specific requirements, you can ask the court to discharge the debt based on hardship. If granted, some of the unsecured, dischargeable, or non-priority debt might be discharged. 

If you do not take action, and cease payments, the court will dismiss your case. At this time, any bankruptcy protections afforded to you will be lost. Creditors can resume their collection efforts which includes filing a lawsuit. While you can refile for bankruptcy, you must wait a minimum of 180 days.