Yesterday a client in Apple Valley called me. I could tell by his voice that he was in panic. He said, “I can’t make my monthly Chapter 13 Plan payment any longer. What can I do?”
Here are the options I listed for him.
Dismiss Your Chapter 13 Bankruptcy
You can voluntarily dismiss your chapter 13 at any time unless the case was previously converted from a Chapter 7. Or you can just wait around and the bankruptcy court will dismiss it for failure to make the monthly Plan payments.
Dismissal means that you and your creditors are back to square one. Of course, any payments that a creditor has received through the Chapter 13 Plan must be credited to your account.
Pros: Dismissing your case may be preferable if you have assets that aren’t exempt in a Chapter 7 bankruptcy.
Cons: If you let your case get dismissed you get no bankruptcy discharge. And if you have to file bankruptcy again there will be a new filing fee, counseling certificate charges, and a complete new set of bankruptcy documents to file all over again.
Modify Your Chapter 13 Plan
If you’re making less income now than at the beginning of your Chapter 13, perhaps you need to consider modifying your Chapter 13 Plan payment to reflect this reduction of income.
Your Chapter 13 Plan payment can be increased or reduced. Suppose you’re Plan payment calls for a $200 monthly payment. But because you no longer get overtime you could modify the Plan payment to a lower amount which reflects this decreased income.
You can reduce of extend the length of your Chapter 13 Plan. Suppose you get sick or have your employment interrupted. You could seek modification of your Plan to extend the length of your Chapter 13. Or you could ask the court to suspend your Plan payments for a couple of months and extend the length of the plan to compensate for it. (This will only work if the original Plan is for less than 60 months duration.)
Convert To A Chapter 7 Bankruptcy
You have a right to convert to a Chapter 7 case. This is an easy process. You just file a “notice of conversion” and pay the $25 court fee.
Any new debts you’ve incurred during your ongoing Chapter 13 are discharged in your new Chapter 7 case. Why? Because the law treats this new debt like it was incurred prior to your chapter 13 filing date.
The Chapter 7 discharge is not as broad as a Chapter 13 discharge, but for most people there’s no difference.
Pros: If you convert to a Chapter 7 you’ll continue to get the protection of the automatic stay and a discharge of all your dischargeable debts within 2 or 3 months.
Cons: If you convert your case, you lose the right to cure arrearage through you plan. This may result in you losing your home/auto if you can’t quickly bring the payments current.
Conversion is a good idea if you started out in a Chapter 13 and then you incurred major medical expenses and hospital bills. You can convert to a Chapter 7 and these new medical bills will be discharged. (Remember … in a conversion to Chapter 7, bankruptcy law treats debts incurred after the Chapter 13 began as though they had been incurred before the Chapter 13 filing.)
Conversion is also a good idea if you filed a Chapter 13 to pay off your home arrears. If you decide to walk away from your home, Chapter 13 no longer serves any purpose. So you convert to a Chapter 7 and get on with your life.
Request A Chapter 13 Hardship Discharge
If because of circumstances beyond your control, you can’t modify your Chapter 13 Plan then you may want to ask the court to issue a hardship discharge.
You must satisfy 2 requirements to qualify for a hardship discharge. First, your creditors must have already received as much as they would have if you had filed a Chapter 7. Second, you must show the court that the reason you can’t complete the Chapter 13 is outside of your control. This major change in your ability to pay can be job loss, health problems or death.
A Hardship Discharge wipes out all debt that is dischargeable under a Chapter 7. Therefore, it won’t discharge student loans and child support. And some types of federal, state, and local taxes will also be unaffected by a hardship discharge.
The Worst Thing You Can Do
The worst thing you can do is to just sit there and do nothing.
As soon as you see that you can’t make your regular Plan payment you should call your attorney. He’s a professional. Let him guide you and help you get your plan back on track again.
I’ll bet you have some questions. You can contact me by phone at 760-241-3215. Or contact me by completing the Contact Stephen Brittain form on the upper right side of this page.
Talk with me. I’ll treat you like a friend.