Your financial situation may change after you file for Chapter 13 bankruptcy, making it necessary to modify your Chapter 13 repayment plan. If modification of your plan is not feasible, you may be eligible to receive a hardship discharge or convert your Chapter 13 to a Chapter 7 bankruptcy. If you are having difficulty affording your Chapter 13 monthly payments, it is important to communicate this information to your Chapter 13 bankruptcy trustee.
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Chapter 13 Bankruptcy
Filing for Chapter 13 bankruptcy allows you to keep your property while you complete a court-approved repayment plan. Most Chapter 13 repayment plans last between three to five years. Your monthly payment in a Chapter 13 plan is based upon the amount of disposable income you have each month after you pay your living expenses and other necessities. Chapter 13 monthly payments are paid to the Chapter 13 bankruptcy trustee, who then distributes the funds to your creditors. To receive a successful bankruptcy discharge, you must complete the plan, making all payments on time and in full each month.
Modifying Repayment Plan
If you are having a hard time making payments to your Chapter 13 repayment plan, consider requesting a plan modification. To request a modification, file a Motion to Modify Plan After Confirmation document with the bankruptcy court. The court will examine your current situation to determine if there is a feasible way to save the plan. Any approved modification to the plan will begin immediately.
You may qualify for a hardship discharge, which is granted by the court if unique circumstances exist that prevent you from completing the repayment plan. But proving hardship is difficult. The court will consider three things when deciding whether to grant a hardship discharge. First, the court will examine whether the failure to complete your Chapter 13 plan is due to circumstances over which you have no control. Second, the court will determine if your creditors have received at least as much as they would have had you filed for Chapter 7 bankruptcy instead of Chapter 13. Finally, the court will weigh whether modification of your plan is possible. A court may award a hardship discharge if you suffer from an illness or disability that prevents you from working and being able to allocate funds toward a repayment plan.
Converting to Chapter 7 Bankruptcy
Another option that may be available if you cannot afford your Chapter 13 repayment plan is conversion of your Chapter 13 to a Chapter 7 bankruptcy. A Chapter 7 bankruptcy is a liquidation proceeding, so your assets are sold to repay your creditors. To qualify for Chapter 7, you may have to satisfy a means test that examines your disposable income to see if you are eligible for bankruptcy. Generally, the smaller the amount of disposable income you have each month, the more likely you are to qualify for Chapter 7 bankruptcy. To convert your Chapter 13 bankruptcy case, file a motion with the bankruptcy court requesting the conversion.