What if You Can’t Finish a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a popular option for consumers. It requires that a debtor make monthly payments on debt for 3-5 years, depending on their income. At the end of the process, any unpaid qualifying debts should be discharged.

This is a great option even for someone with debts which aren’t dischargeable, like unpaid child support late mortgage payments. You can spread them out over the payment plan, which buys you time. So long as you stick to the plan, a debtor can’t sue you or take other collection activity, relieving you of wage garnishment and phone calls at night. You can also prevent a foreclosure so long as you keep current on your mortgage.

Unfortunately, three to five years is a long time to stick with a payment plan. Many debtors can’t keep up with the payments. They might experience job loss, disability, or other crises. What can you do if your debt payment is just too much, even after filing for bankruptcy? Below, our Chapter 13 bankruptcy lawyer reviews your options.

Modify Your Payment Plan

Temporary job loss or other difficulties could make your payment plan too high. You could request a modification by filing a motion in the bankruptcy court.

Modification is not automatic, and there are limitations.

For example, your modified plan must pay all priority debts, like family law obligations (e.g., child support) and taxes. If you want to keep property, like a home, then you need to pay back all mortgage arrearages.

To modify your payment plan, you’ll want to reduce the amount paid each month, which means you’ll pay your creditors less over the course of the plan. Consequently, you might end up losing property, like your home, if you can’t catch up on the arrearages.

Modification might work if you are sending some money each month to nonpriority, unsecured creditors, such as credit card or medical debt. You could reduce the amount contributed to these creditors, which will lower your overall monthly payment.

Contact an attorney for help crunching the numbers. Staying on a Chapter 13 payment plan is ideal. You can avoid wage garnishment or other collection activity by modifying the plan and sticking with it. You can also avoid losing property.

Request a Hardship Discharge

Another option is a hardship discharge, where you ask the district court to end your plan early. It’s rare, but some debtors are able to obtain it.

You will need to prove:

1. You can’t continue with the plan due to circumstances beyond your control. Typically, you prove a medical condition or disability which is permanent.
2. You have made adequate payment. If your creditors have received what they would in a Chapter 7, then you have satisfied this element. For example, all your assets might be exempt, in which case creditors get nothing in a Chapter 7.
3. Modifying your payment plan isn’t realistic. As an example, you could be permanently disabled, which means you’ll never earn enough to pay even a modified plan.

A hardship discharge can be a terrific boon. You can eliminate certain debts and get out of your plan early.

Unfortunately, few people qualify for it. Ending the plan early means that most debtors will not have made adequate payment to their creditors. If all your assets were exempt, then it’s likely you would have filed Chapter 7 in the first place.

Nonetheless, this is an option for some, and never assume you don’t quality. Resolve Law Firm can review your payments to date, along with other relevant information to see if you can request a hardship discharge.

Convert to Chapter 7

A conversion to Chapter 7 might be an option for someone who can’t qualify for a hardship discharge. You will probably need to pass the means test, which looks at your household income. Some people filed Chapter 13 precisely because their income was too high, but it might have fallen by the time you decide to abandon your payment plan.

If you convert to a liquidation bankruptcy, then realize the bankruptcy trustee can take your nonexempt property and sell it or give it to your creditors. That’s always been a feature of Chapter 7 bankruptcy, which might be another reason you avoided it. Now that you are trying to convert into Chapter 7, you must swallow the bitter pill of losing property.

If your property is exempt, then you won’t lose anything. Work closely with a lawyer to choose the correct exemptions. California gives debtors options.

At the end of a Chapter 7, all qualifying debt is discharged. You can usually complete this bankruptcy in under 6 months.

Stop Paying—And Wait to Be Sued

What if none of the above options work for you? For example, you might have dug yourself into a deep financial hole by spending too much, so the circumstances aren’t “beyond your control.” Also, your income could be too high for the means test, so you can’t convert to Chapter 7.

In situations like these, you might stop paying your payment plan. It’s up to your creditors to take next steps. Odds are they will try to sue or garnish your wages. Once you are out of bankruptcy, the stay no longer prohibits them from engaging in collections, so expect calls at home in the evening about your debt.

You could also lose secured assets. For example, your home might immediately go into foreclosure, or your car gets repossessed. A successful creditor could also put a lien on your property, eventually forcing its sale. However, there’s a slim chance the creditor might have forgotten about you.

Speak with a Chapter 13 Bankruptcy Attorney at Resolve Law Firm

Sticking to a payment plan is difficult. So many unforeseen circumstances can arise, and suddenly you can’t pay. This can happen to anybody, and there’s no reason to be too embarrassed to talk with a lawyer about your realistic options.

ContactResolve Law Firm to schedule a meeting. We offer a free 30-minute consultation which is completely confidential.