Income and Expense Changes in Chapter 13 and What to Do
You file a Chapter 13 bankruptcy anticipating a certain level of income in order to obtain a discharge. So what do you do if things start to go awry? How do you modify your chapter 13 plan?
A bankruptcy discharge doesn’t always happen on time. To obtain a Chapter 13 discharge, you have to successfully finish a three-to-five-year repayment plan. During that time, you’ have to live within a budget in order to repay some portion of your pre-petition debt. At the end of your repayment plan, your discharge eligible debts are eliminated.
The repayment plan assumes that you’ll remain gainfully employed throughout it and that your expenses will stay constant. If you lose your job or your household wages decline, call your Phoenix bankruptcy lawyer right away. Likewise, if your household expenses escalate, let your bankruptcy attorney know as soon as possible.
Changes in Your Employment Status or Expenses
Changes in employment and/or expenses are significant changes that can form the basis for a modification request. Not all Plans can be modified. For example, if you are now paying back only your mortgage arrears and your bankruptcy attorney fees, there may not be any room to reduce your monthly payment. Of course, you won’t know what is possible until you call your bankruptcy attorney.
Modifying Chapter 13 Plan
At Phoenix Fresh Start Bankruptcy Attorneys, we can file a request to ask the bankruptcy court to revise your monthly payment obligations. This request can be made at any time during the pendency of your plan. Generally, this is accomplished by motion and submitting a proposed amended or modified plan for review.
When You Can’t Modify Your Chapter 13 Plan
As noted earlier, there are circumstances under which your plan may not be modifiable. Maybe your current plan does not provide for payment for anything other than stuff you intend on keeping. In such a situation, it may be time to consider a hardship discharge, conversion or a dismissal so that you can refile at a later date.
Hardship Discharge if Chapter 13
A hardship discharge is a discharge that might be available where you can no longer afford payments, even modified payments, during your repayment plan. Bankruptcy courts are generally less amenable to hardship discharges than they are to plan modification or conversion.
In order to qualify, you’ll have to show that there is a permanent change in your circumstances beyond temporary job loss that is beyond your control. For instance, let’s assume that you had a stroke that left you unable to work at all. This would be considered a permanent change in circumstances. You must also show that your unsecured creditors have already received as much money as they would have been entitled to receive in Chapter 7 bankruptcy. As you can see, gaining a hardship discharge requires that you meet pretty stringent criteria.
Converting Chapter 13 to Chapter 7 Bankruptcy
Another possible option is to convert your Chapter 13 bankruptcy to a Chapter 7. You may have been forced to file Chapter 13 because you made too much to pass the means test. But now that your income has declined, you can show that you can no longer afford your plan payment. Because your income is now less than your expenses you may qualify for conversion. Similarly, maybe you filed Chapter 13 to save a car but a couple years into the plan, the car is not worth saving. You may qualify for conversion. When considering conversion, your attorney will need to carefully review your case as their risks attendant to Chapter 7 that are not present in Chapter 13.
Dismissing Your Chapter 13 Bankruptcy
Finally, you may want to consider dismissing your case and refiling later. If this just isn’t the time for bankruptcy obligations, there may be advantages to filing at a later date including better treatment for tax obligations, including debts that may be lurking on the horizon but have not yet been incurred or getting better treatment for car loans. This is an option that you may want to review thoroughly with your attorney as well.
Contact Our Experienced Chapter 13 Attorneys
The bankruptcy attorneys at Phoenix Fresh Start Bankruptcy are always here for you, no matter what issues present themselves during the pendency of your plan. We can help as long as you keep us in the loop.