If you filed for Chapter 13 bankruptcy, you obviously had a plan. Since Chapter 13 bankruptcies require you to repay some or all of your debts off over a period of up to 5 years, you may have chosen that route for any number of reasons, like not meeting the financial means test for Chapter 7 or having property you wanted to hang onto that you wouldn't be able to keep in a Chapter 7 bankruptcy.
What happens when those plans fall through? If you suddenly find that you can't make the payments on your Chapter 13 plan, these are the steps you need to take.
Contact the Trustee
Before you do anything else, and that includes missing a payment, contact the trustee in charge of your case. That lets the trustee know that you aren't taking the issue lightly or trying to avoid your responsibilities.
If the situation seems to be temporary, like a short layoff while the restaurant you cook for remodels or you've got a broken leg that's going to keep you off work for 8–10 weeks, the trustee has the power to modify your plan and work with you in order to keep it from falling through. If you've been diligent about your payments and have no control over the situation, there's no reason the trustee should be unwilling to work with you.
If the situation isn't as easily resolved, you still want the trustee's good will. He or she may be willing to put a temporary stay on collections until you can file the appropriate paperwork to change your plan.
Contact Your Attorney
If your situation is likely to continue for a while—perhaps even permanently—you may be able to rescue your bankruptcy with a modification plan. For example, if you lost your job but found another that's in a lower pay scale, you can request a long-term modification of your plan. You may end up repaying your creditors less than you would have before, but it may still be an acceptable option. You'll need an attorney to help you through the process of asking for the permanent modification.
You may qualify for a hardship discharge, especially if you've been paying into the Chapter 13 plan for a while. Hardship discharges are only possible when:
- you can't be reasonably held accountable for your situation (for example, if you quit your job, you're accountable, but if you were let go because your company was having financial trouble, that's not something you can help),
- you've already paid enough into the plan for your creditors to have received at least what they would have if you had filed Chapter 7, and
- modification of the plan isn't practical (for example, you're unlikely to find work at your previous salary or you've developed a disability that makes returning to work impossible).
A hardship discharge has some advantages over converting the case to a Chapter 7 bankruptcy because you wouldn't be required to give up any of your assets. However, keep in mind that the trustee has to determine that, if those assets were seized and sold, they'd be worth less than what you've already paid on the plan.
Another option is to convert your Chapter 13 into a Chapter 7. In that case, you would no longer be required to make a monthly payment plan and your case will be settled within a few months. However, you may have to surrender certain assets you'd hoped to keep. For example, if you have rental property or a second home, you may lose those assets to the court so that they can be sold and the value used to pay your creditors at least part of what you owe.
To find more info on what to do when you can't make the Chapter 13 payments, speak to an attorney in your area.