Chapter 13 bankruptcy affords you the opportunity to keep your most cherished assets. In a Chapter 13 bankruptcy, your debts are consolidated into a monthly payment that lasts for three to five years. After you have completed the payment plan, you may keep your vehicle, house and other possessions while discharging debts. But what happens if you experience financial hardship during your repayment period?
Illness, divorce, job loss and other unexpected expenses could derail your payment plan. In such cases, you may have a few options.
- Modifying your repayment plan: If the court has not approved your payment plan, then you could request a modification prior to its confirmation. You could draft a new plan to present to the court. However, creditors could object to the new plan. Your proposed modification must also be approved by the judge. It is important to demonstrate to the court why you are seeking a modification of your repayment plan. Documentation such as medical records, pay stubs or a letter of termination can help demonstrate why you need a modification. Although you can also modify your plan after confirmation, it could be more difficult to receive approval.
- Converting to Chapter 7 bankruptcy: If you cannot make payments and are unable to modify your repayment plan, then you may convert your Chapter 13 bankruptcy into a Chapter 7 bankruptcy. Although there are exemptions in Chapter 7 bankruptcy, there is a possibility that you could lose property by converting your case.
- Seek a Chapter 13 hardship discharge: In rare cases, you may be able to receive a Chapter 13 hardship discharge. You must meet very specific criteria to qualify for this option. For many people, it is very difficult to meet these criteria.
What Happens if I Do Not Make My Chapter 13 Payments?
It is important to address Chapter 13 payment problems as quickly as possible. If you fail to make payments, then the court could dismiss your case. The court could also automatically convert your case into a Chapter 7 bankruptcy.