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If you find yourself in a situation where you’re unable to keep up with Chapter 13 bankruptcy payments, it may be possible to have the payments deferred or even have the repayment plan modified.
Deferrals are a temporary solution for those experiencing unexpected or sudden financial challenges. Typically payments can be put off for a month or two. After that, you may need to consider requesting a modification to your repayment plan or switching to Chapter 7 bankruptcy. Here’s how to decide if deferring Chapter 13 payments is right for you.
Can I defer Chapter 13 bankruptcy payments?
You may be able to modify or suspend Chapter 13 bankruptcy payments. It all depends on the details of your case. You’ll need to address the following obstacles before you miss a payment completely.
Do you pay your mortgage or car payment directly to the trustee?
Some bankruptcy districts allow you to combine your mortgage and car payments into your Chapter 13 payment plan. This option leaves you with one large consolidated payment to make. If you’ve gone this route and you miss a payment, you simultaneously miss a mortgage and/or car payments.
In this instance, the trustee may file a motion to dismiss your Chapter 13 case and remove you from bankruptcy protection. You’ll have to oppose the trustee’s motion and catch up on the delinquent payment before creditors start to contact you.
Can you afford the current payment?
Falling behind on one payment may not be a huge deal. If you miss one payment, do your best to catch up on it as soon as possible. You may want to make a partial payment if you can’t cover it completely.
If you default on multiple payments, there is probably an issue. The current payment may be too high for your current income and budget.
When should you file a motion to modify or suspend the payment?
If you seek to suspend or reduce your payment, you’ll need to figure out when it makes the most sense. You may be proactive and do it right away. This is called a motion to suspend or modify Chapter 13 plan payment and will probably cost you a bit in attorney fees.
While every bankruptcy trustee is different, some have a strict process for requesting to modify or suspend payments. You’ll need to consult your bankruptcy attorney or trustee for more information on their specific guidelines.
When deferment might be an option
If you’re experiencing some sort of unexpected financial hardship or emergency that’s only temporary, deferring a few payments may be a good choice to help you get caught up. If you’re considering this course of action, start by talking with your trustee and explaining the situation.
What can you do if you can’t make your payments?
Consider these options if you have trouble with your payments.
Ask for a hardship discharge
Even if you don’t make all your plan payments, you may be eligible for a hardship discharge. If you request one, the court will review your situation and consider the best interest of your creditors. With a hardship discharge, your case will be terminated before the three- to five-year repayment plan is up.
Next steps: You must file a motion with the court for a hardship discharge. Discharges are generally available to debtors who cannot continue making payments for reasons beyond their control or are at no fault of the debtor. It also helps if creditors have already received as much as they would through a Chapter 7 liquidation case by the time you request the discharge. This approach is best for individuals for whom a modification plan is impossible. It can also be a good option if injury or illness prevents you from earning the money needed to continue making even modified repayments.
Switch to Chapter 7
If you cannot modify your monthly payments and aren’t approved for a hardship discharge, it may make sense to convert to Chapter 7 bankruptcy. This is where your nonexempt property will be sold, and your unsecured debts will get wiped out. Remember that you’ll need to pass the means test to move forward with Chapter 7.
Next steps: To convert, you will have to pass a means test, so start by finding a lawyer who can help determine whether your income is low enough to qualify. This step may be a good option for those who can no longer make Chapter 13 payments due to income loss or other unexpected issues. It can also be a good choice for those who do not qualify for Chapter 13 modification.
Dismiss and refile your case
The court can dismiss your case and refile a different Chapter 13 bankruptcy as a last resort. You may go this route if you cannot keep up with your Chapter 13 payment plan and aren’t a good fit for Chapter 7.
Next steps: This approach may be appropriate if none of the other choices are open to you or allow you to move forward with your existing repayment plan. In this scenario, the court would dismiss your case if you fail to continue making payments, after which you would refile.
Can I lower the monthly payments?
If your income goes down during your Chapter 13 bankruptcy and you can’t make your monthly payments any longer, you can ask the bankruptcy court to reduce them. To determine whether or not you deserve lower payments, the court may consider several factors, including your expenses, debts and the nonexempt property you own.
Review your situation before you ask for lower payments. If the court notices your expenses have decreased or your income has increased, they may raise your payments instead of lower them.
The court may approve your request if you took a lower-paying job or are self-employed and lost customers or faced unexpected business expenses. They might also lower your payments if you suffer a serious injury or disability or are forced to pay health insurance costs that your employer previously covered.
If you can’t make your Chapter 13 bankruptcy payments, speak to your bankruptcy attorney or trustee to learn more about your options. They can help you identify potential issues and recommend the best way to proceed with your case.