Pitfalls That Can Derail a Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, the debtor must partially repay certain unsecured debts over time according to a detailed court-approved plan. Although most debtors successfully fulfill their plan payments and receive a discharge of remaining debt, there are things that can cause a Chapter 13 to go askew.

Creating a plan requires making projections of income and expenses over the three to five years that the plan will be in place. However, it is difficult to forecast everything that might befall an individual debtor. Here are some of the events that can cause difficulty in adhering to a Chapter 13 plan:

• Shortfalls in income — A job loss, salary reduction or cut in working hours can leave a debtor without the funds to continue making monthly payments. The bankruptcy trustee may grant a forbearance if there is evidence that the lost income can be replaced reasonably quickly. However, if lack of income is a chronic problem, the Chapter 13 plan might be dismissed.
• Unexpected expenses — An unexpected, high priority expense can leave the debtor with insufficient funds to make the plan payments. Examples are large medical bills for injuries or illnesses, which are exceptionally difficult to predict.
• Not reporting increases in income — Throughout their Chapter 13 plan period, debtors have a duty to inform the court when their personal or family income has increased. The court can respond by ordering an increase in the amount of debt to be repaid. Failing to report additional income to the court can result in dismissal of the Chapter 13 case.
• Buying assets or incurring added debt — A Chapter 13 debtor cannot purchase an asset of significant value without the express permission of the court. Likewise, a debtor cannot incur any financial obligations or take on more debt without court approval. Doing either can result in dismissal of the case.

Another potential cause of derailment of a Chapter 13 is failure to keep the lines of communication with the court trustee open throughout the plan period. Some debtors move or change phone numbers without informing the trustee or the court, which can cause important notices and communications to be missed. a Chapter 13 attorney can ensure that all relevant changes in the debtor’s situation are brought to the trustee’s attention.

Jeff Field & Associates concentrates its practice on bankruptcy and debt relief in and around Atlanta, Marietta and Athens, Georgia. If you have a personal debt problem, feel free to contact us online or call 404-381-1278 for an initial consultation.