The repayment plan established in a Chapter 13 bankruptcy is a reflection of a filer’s total debts and income. People who make the necessary payments can discharge the remaining balances on their eligible unsecured debts.
Some people struggle to complete the repayment plan, possibly because of unexpected changes to their financial circumstances. A layoff or termination can lead to a sudden loss of income. Individuals who have not yet completed their repayment plans could then be at risk of the court dismissing the bankruptcy case without granting them their discharge if they miss payments.
What options do people have when financial challenges complicate bankruptcy proceedings?
Filers have two main options
People who have lost their jobs may need a bankruptcy discharge even more than they did when they initially filed. Thankfully, it is possible for those pursuing bankruptcy relief to proceed with the bankruptcy process, although significant changes are likely necessary.
There are two viable solutions. One is to petition the courts to modify the repayment plan based on the new financial circumstances of the filer. The lower monthly payment and even a reduced total payment timeline might be options that make the Chapter 13 plan manageable.
If the filer is not able to find a new job quickly, their income may drop substantially in the weeks following their job loss. They may eventually be able to pass the means test and qualify for a Chapter 7 bankruptcy. Provided that the conversion of the filing does not endanger any of their valuable assets, switching from a Chapter 13 to a Chapter 7 bankruptcy can be an appropriate solution.
Discussing concerns about a Chapter 13 bankruptcy with an attorney can help people understand their options. Those who lose their jobs and cannot complete necessary payments may need assistance avoiding the dismissal of their cases, and that’s okay.