What if I am unable to complete my Chapter 13 bankruptcy plan?
In order to get a discharge of your debts, a Chapter 13 debtor must complete their plan by paying a certain amount of money each month for the length of the plan. But what happens if you are unable to pay the monthly payment required by your plan? Sometimes it is possible to modify the terms of your plan by petitioning the court. At any time after your plan has been confirmed but before the completion of your plan, you can ask the court to modify the number of payments under the plan or to reduce the amount you pay each month under the plan. For example, if during the course of your Chapter 13 bankruptcy your spouse loses their job, you may be able to petition the court and successfully modify your plan. Another option, if you are unable to modify your Chapter 13 plan and completion seems impossible, is to petition the court to change your case from a Chapter 13 case to a Chapter 7 case.
However, if either of these options is unavailable or otherwise unadvisable, you can also request the court to grant you a Chapter 13 hardship discharge.
Under the Chapter 13 hardship discharge a court will only grant a discharge if the following criteria are met:
(1): The debtor’s failure to complete the Chapter 13 payment plan is due to reasons for which the debtor should not be held accountable.
– Courts normally look at such things as “loss of income” that was not expected, such as loss of a job or business and/or an unanticipated increase in your expenses. Other factors courts examine include (1) whether you had the ability and intent to pay the amount under your plan when confirmed; (2) whether the “disrupting event,” such as loss of income, was foreseeable at the time of confirmation; and (3) whether there is a likelihood of the “disrupting event” continuing in the future.
(2): Creditors have received at least the same amount of money from that debtor that the creditors would have received had the debtor originally filed in Chapter 7.
– This requirement stays within the logic of the Chapter 13 “best interests” test, which requires that unsecured creditors be paid AT LEAST what they would have been paid had the case been filed in Chapter 7. Under the hardship discharge rules, the same requirement must be met.
(3): Modifying the plan is NOT practicable.
– Examples could include a situation where a debtor has lost his or her hob or suffered some injury, making employment in the future improbable. Here an attorney will be able to evaluate your circumstances and determine whether it is feasible to modify your plan or not.
One of the main benefits of obtaining a hardship discharge is that it will permit you to keep your non-exempt assets. If you convert to Chapter 7, all non-exempt might be sold and distributed to your creditors.
Overall, if you have trouble making your plan payments it is important to consult an attorney who can advise you on how you can still complete a successful bankruptcy and get the fresh start you deserve.