What Are Your Options if You Can’t Make Your Payments Under Chapter 13?

The core of a Chapter 13 bankruptcy is the establishment of plan calling for you to repay a portion of your unsecured debt on a monthly basis over a three- to five-year period. These plans are designed to be manageable, but things can happen in life that cause you to struggle to make your payments. If you are behind or at risk of falling behind on your repayment plan, it’s time to explore options.

Perhaps the most important thing to do if you anticipate being late on your Chapter 13 payments is to get your attorney involved. Based on an analysis of your situation, your lawyer can reach out to the bankruptcy trustee and seek approval for remedial action. Most trustees are flexible and understanding when it comes to people struggling to make payments, but that flexibility and understanding can disappear quickly if you don’t communicate with them promptly.

With the trustee’s assent, you may be able to pursue one or more of several options:

• Payment deferral — Trustees are often amenable to allowing debtors to defer one or two payments, particularly when the debtor is going through a financial emergency like a medical crisis or unexpected car repairs.
• Plan modifications — You might be able to have your payment amount reduced by asking the court to modify your plan. The ability to modify can depend on the nature of the debt. If most of your debt is priority debt that must be fully repaid, such as child support or tax debt, then modification may not be allowed.
• Hardship discharge — While this is rare, a court can allow you to end your Chapter 13 plan early if you can demonstrate circumstances beyond your control. A hardship discharge is generally an option only if your unsecured creditors have already been paid at least as much as they receive in a Chapter 7.
• Convert to Chapter 7 — If you can’t make your payments and are not eligible for a hardship discharge, converting to Chapter 7 may be an option. Some of your property might have to be sold to satisfy your debts. You would need to go through a means tests to see if you qualify for Chapter 7. If you meet the test, you can use allowable bankruptcy exemptions to keep certain property.
• Dismiss and refile — If converting to Chapter 7 doesn’t make sense and no other option helps you get relief, then dismissing your case and refiling later might be the right choice. This is something you’ll want to discuss with your lawyer to ensure you are making the best decision.

At the Law Offices of Michael Jay Berger in Beverly Hills, we help people throughout Southern California with all aspects of Chapter 13, including modifying and converting to Chapter 7 when appropriate. If you need advice, please call our lawyers at 310-271-6223 or contact us online to arrange a free consultation at one of our conveniently located offices.