When your Chapter 13 bankruptcy case is confirmed by the Court, you enter into a debt repayment plan. The payment plan is carefully created considering your specific financial situation. It is created with the intent to pay your creditors back, while at the same time not creating an undue hardship on you. In theory that is a great concept, however, the payment terms are typically three to five years, and any number of circumstances can occur in that time period. Maybe you had a child, lost your job, develop an illness or are going through a divorce. What happens if you can no longer make your Chapter 13 Debt Payment?
First off, don’t feel alone. This happens frequently and the courts have a number of options you can explore. The first step would be to contact your bankruptcy attorney, explain your situation and remain calm as you collectively decide which option would be best.
Submit a Petition to Bankruptcy Court
If you feel you can’t make your Chapter 13 Debt payment only temporarily, you can petition the court for a suspension. This is similar to requesting a forbearance on your student loan. Your bankruptcy lawyer will petition the court to suspend your repayment plan for a certain amount of time. This is usually one to two months.
Once the petition is filed with the court, both the court and the trustee will have to agree to the terms. If granted, you will ultimately be required to make up for the missed payments by paying a slightly larger amount in the remaining repayment months. It is important to note, that the court normally only grants suspensions on five year repayment plans.
After reviewing your situation, your bankruptcy lawyer may feel that a month or two suspension will not accommodate your situation. In that case, you might want to explore a Chapter 13 debt modification.
Chapter 13 Debt Modification
The process for requesting a debt modification is similar to that of the suspension; you will begin by petitioning the court for new payment terms. The court will require you to show good cause for the new repayment terms and you will need to explicitly show what facts necessitate the need for the new repayment terms. During this process you will also be required to submit a new budget and the court will have to thoroughly review and approve it.
In rare circumstances neither a suspension nor a modification will meet your needs. In that case you may need to explore converting your bankruptcy to a Chapter 7 bankruptcy.
Convert to Chapter 7 Bankruptcy
If you feel your financial situation will still not allow you to make your Chapter 13 Debt Repayment with a modification, and you do not foresee your situation changing for the better, Chapter 7 could be the way to go.
Your bankruptcy attorney will need to petition the court to convert your bankruptcy to a Chapter 7 and will need to provide evidence of why you qualify for the conversion. If the court finds that you meet the circumstances, your case will be converted to a Chapter 7 bankruptcy and your unsecured debts will be discharged.
Bankruptcy is always full of options and its best to explore all of the options with the guidance of a highly qualified bankruptcy attorney.