Chapter 13 bankruptcy is not an instantaneous process. A filer must submit paperwork to the courts and negotiate a repayment plan. They then need to make between three and five years of structured payments.
The repayment plan often requires the majority of the filer’s disposable income. Financial setbacks related to job loss or other unexpected challenges, such as a personal medical emergency, could leave people scrambling to cover their financial obligations.
How can filers protect themselves when they don’t have the income to make payments?
Modifying the plan
People who file for Chapter 13 bankruptcy have to make disclosures to the courts regarding their finances. The details of their circumstances influence the terms set for the repayment plan.
When there is clear evidence of a significant change in circumstances, the courts may agree that the situation warrants a significant change in the repayment plan as well. Filers can submit in-depth paperwork to the courts requesting a payment plan modification based on their change in circumstances.
Converting the case
Sometimes, people pursuing Chapter 13 bankruptcy lose their jobs and have no immediate prospects to secure new employment. They may then find themselves incapable of making payments once they have exhausted their personal savings.
In such scenarios, filers may sometimes be able to convert a Chapter 13 bankruptcy case to a Chapter 7 filing. Doing so may allow them to complete the bankruptcy process much more quickly and to discharge eligible debts without completing the repayment plan.
Learning about different solutions for challenging circumstances can help Chapter 13 bankruptcy filers avoid setbacks, such as the dismissal of their cases. Filers dealing with job loss and other hardship may need to request a payment plan modification or even switch to a different form of bankruptcy.