What If I Can’t Make My Chapter 13 Plan Payments?
During a Chapter 13 bankruptcy the debtor develops a plan to repay all or part of his debts through installments. Once the bankruptcy court confirms the plan, the debtor is obligated to make payments over three to five years. A lot can happen during those years, and sometimes a debtor is unable to pay the plan installment payments. Fortunately the bankruptcy laws provide the Chapter 13 debtor considerable flexibility when facing changed financial circumstances.
If your inability to pay the plan installments is due to a temporary interruption in pay (lay off, change in employment, etc.) or an unexpected financial emergency (car repairs, medical expenses, etc.), you may be able to obtain a suspension of payments for a couple of months. A suspension only delays your plan payments, so your plan will be extended to make these payments up in the future. Since a Chapter 13 plan cannot extend past 60 months, suspending plan payments may only work for certain below-median income cases that are not initially scheduled as 60 month plans.
Modifying your Chapter 13 plan is another option, especially if your financial change is not temporary and you will continue to have difficulty paying your plan installments. When you propose to modify the terms of your Chapter 13 plan, the bankruptcy court will scrutinize your financial records to determine what you can pay and whether creditors will receive more if your case was converted to Chapter 7 (a liquidation bankruptcy).
Since a Chapter 13 bankruptcy is a voluntary case, you can always dismiss your bankruptcy case. If your case is dismissed prior to discharge, you will typically not be barred from re-filing and receiving a discharge in the future. However, there are certain exceptions that may apply, and dismissal is usually a last option. Consult with your bankruptcy attorney.
If your change of circumstances prevents you from affording any payment to creditors, you may opt for voluntary conversion to Chapter 7. One benefit of conversion is that any debt incurred since your Chapter 13 filing date can be included in the Chapter 7 case.
A hardship discharge is an option if your change in circumstances was beyond your control (job loss, illness, disability, etc.) and a Chapter 13 modification is not a solution. A hardship discharge will end the Chapter 13 case prematurely and eliminate the remaining scheduled payments. Hardship discharges are only granted for the most extreme cases.
If you find yourself unable to pay your Chapter 13 plan installments, speak with your bankruptcy attorney immediately. While there are options for dealing with a financial change, delaying action will only make matters worse. Speak with your attorney and be proactive in dealing with your finances.