A Chapter 13 bankruptcy is a consolidation of debt that allows you to use your income to pay back your creditors on a repayment plan. This repayment plan spans from three to five years. Many of your payments are dependent on your disposable income. Chapter 13 plans require you have a steady income flowing in so that you can pay for your living expenses, and paying off new, and old debts. However, if you lose your job while in a Chapter 13 plan, making those payments can be difficult or impossible. If this event does occur you may be asking yourself, “do I still have to make plan payments based on income I no longer receive?’.
If you do lose your job while in the middle of a Chapter 13 repayment plan, not all is lost. First, let your attorney know what is going on. Your attorney needs to know the details of your situation so that they can help you determine what your next move should be.
There are a couple of options to consider. If you still have enough income to make payments, your bankruptcy attorney can ask the court to modify your payment plan amount. This new plan will be based on your new income, and offer lower monthly payments. Another option is to convert your Chapter 13 plan to a Chapter 7 (certain stipulations may apply).Finally, you can allow your Chapter 13 case dismiss and then file a Chapter 7. If you recently lost your job, your income still may be too high to pass the Chapter 7 means test. If you stop paying your Chapter 13 payments then your case will be dismissed; however, you can file a Chapter 7 at a later date.
Written by: Rebecca Kidd