What Happens if You Can’t Afford to Make Your Chapter 13 Payments?

In a Chapter 13 bankruptcy, you agree to pay off a portion of your outstanding debts over a designated period of time. But many things can happen during the three or five years that a Chapter 13 plan is in place. A job loss, severe illness or other unexpected calamity can disrupt even the best restructured plans. If you are unable to make required payments on time, you are in jeopardy of the Chapter 13 being dismissed. Fortunately, there are potential solutions.

Sometimes, a relatively minor and temporary setback might force you to skip a scheduled payment or two. In such situations, the court may be flexible. At your request, the trustee might allow one or two payments to be made up later in the Chapter 13 process. So long as there will be a minimal impact on the creditors and overall plan, the trustee will usually be agreeable.

However, you may have suffered a more significant financial setback that forces you to skip a series of payments. In this situation, you may request that the court modify the existing plan. The amount and/or the time period can be changed, so long as any extension does not push the case beyond the five-year limitation. If there is a reasonable chance that you can regain your footing in a reasonable amount of time, the court may grant a modification of the plan. You should be prepared to thoroughly explain and defend a modification request.

When there is a significant disruption in your income, conversion to Chapter 7 may be a viable option. In a Chapter 7 bankruptcy, the vast majority of unsecured debts are discharged completely. However, there are strict income limitations for filing under Chapter 7. Those who earn too much money may be forced into Chapter 13. If you undergo a substantial reduction in income while the Chapter 13 plan is in place, you can file a notice of conversion. The Chapter 13 plan ends and the case proceeds as a Chapter 7.

In still another scenario, if you suffer a significant financial setback that you are unlikely to overcome within a reasonable amount of time, you have the option of voluntarily withdrawing the Chapter 13 case and refiling, so that a more viable plan can be crafted.

Jeff Field & Associates is one of the largest bankruptcy and debt relief law firms practicing in the Atlanta, Marietta and Athens regions of Georgia. If you are in a financial crisis because of excessive debt, feel free to contact us online or call 404-381-1278 for a consultation.