When you file Chapter 13 bankruptcy, the repayment plan generally lasts three to five years. Unfortunately, a lot can go wrong in that time. Job loss, injury, illness, divorce, or adding to your family can impact your ability to make payments as agreed to in your bankruptcy. So what happens if you can’t make your Chapter 13 bankruptcy payments?
If you fail to make bankruptcy payments as agreed, your case could be dismissed by the bankruptcy trustee. If your bankruptcy case is dismissed, you will no longer have any protection from creditors and they can pursue you for payment via lawsuits, garnishments, and liens. Fortunately, there is a lot you can do to avoid a bankruptcy dismissal.
Notify Your Attorney
As soon as you realize that you can no longer make your Chapter 13 bankruptcy payments, notify your attorney. Let your bankruptcy attorney know in writing why you can’t pay so that they can immediately notify the bankruptcy court and inform you of your options.
When you’re experiencing a temporary change in your finances, the bankruptcy trustee may be willing to suspend your payment obligations until your finances improve. For example, if you were laid off from your job, you might receive a Chapter 13 payment suspension for a few months until you find a new job. You will need to prove to the bankruptcy trustee that you are in fact experiencing a financial hardship before you’re considered for a payment suspension.
If your finances have changed permanently or for the foreseeable future, you can request that the bankruptcy court reduce your payment amount. However, you may not be allowed to modify your bankruptcy payment agreement if it means that doing so would leave certain priority creditors unpaid. For example, you must make child support payments, this cannot go unpaid due to a payment reduction.
If your financial situation is likely to be permanent and you can’t make reduced payments, you may be allowed to convert your Chapter 13 bankruptcy into a Chapter 7 bankruptcy. Converting your case to a Chapter 7 bankruptcy means that you will be allowed to discharge your unsecured debts. But you can only convert to a Chapter 7 bankruptcy if you pass the means test.
If you find that none of the above options are feasible for you, you can always voluntarily dismiss your case and refile at a later date. For example, if you know that you will likely find another job in six to twelve months, dismissing your case and refilling in a year may be a good option.
If you’re unable to make your Chapter 13 bankruptcy payments, talk to your attorney about your options. A qualified bankruptcy attorney can examine your financial situation and recommend the best strategy for you case.