Chapter 13 bankruptcy provides individuals with a structured way to reorganize their debts while keeping their assets. A Chapter 13 debtor can create a three- or five-year plan calling for monthly payments in amounts determined based on the debtor’s disposable income (the income left after deducting reasonable living expenses) and the value of any nonexempt property. If the debtor’s income is below the state median, the plan usually lasts three years. If the income exceeds the median, the plan generally spans five years.
Despite the tailoring of a Chapter 13 plan to meet the debtor’s abilities, there can be unexpected financial circumstances that make it difficult to maintain payments. If you find yourself in this situation, it is important to understand your options and to act promptly to avoid severe consequences.
One remedy is requesting a payment deferral. If your financial difficulty is temporary, you may ask the Chapter 13 trustee to approve a short-term suspension of payments. This deferral can give you breathing room to recover from unforeseen setbacks, such as a medical emergency or temporary job loss. However, you must demonstrate good faith and provide a valid reason for the delay.
Another option is seeking a plan modification. You may request a change to reduce your monthly payment amount or extend the plan’s duration, depending on your circumstances. Modifications require court approval and often involve showing evidence of a significant change in financial condition, such as a reduction in income or increase in necessary expenses.
If your financial situation worsens and making payments is no longer feasible, a hardship discharge may be granted. This is a court order releasing you from the remaining debts without completing all plan payments. However, this remedy is granted only under very limited conditions. You must show that the hardship is beyond your control, that modification is not practical and that creditors have already received payments equal to what they would have received under Chapter 7.
Alternatively, you may seek to convert your Chapter 13 case to a Chapter 7. This option is suitable if your financial situation has deteriorated to the point where liquidation of nonexempt assets is necessary to resolve your debts. Converting to Chapter 7 requires meeting eligibility requirements, including passing the means test.
If none of these options work, you might choose to request dismissal of your Chapter 13 case. Dismissal allows you to refile and to create a new repayment plan with different terms, potentially accommodating your new financial reality. However, refiling can have restrictions and implications, especially if your prior case was dismissed due to noncompliance.
Throughout this process, communication with your bankruptcy attorney is critical. The sooner you notify your attorney about difficulties making payments, the more options you will have. Your attorney can guide you through the legal steps and advocate for the best possible outcome.
The Law Office of Gregory Messer in Brooklyn, New York concentrates in bankruptcy law. With decades of experience, we provide personalized solutions to help you navigate financial challenges and find a path to stability. Call {PHONE) or contact us online to schedule a free initial consultation.