After you have filed Chapter 13 bankruptcy, you will need to make monthly payments. As more and more people find themselves in dire financial conditions thanks to COVID-19, you might be one of the people wondering what happens if they cannot make these payments. This is truly a worst-case scenario, but we can answer your question. If you are considering filing bankruptcy, contact The Law Offices of Paul Y. Lee now at 888-748-0025 for a free consultation.
The First Consideration: Is This a Temporary Situation?
If you are facing a temporary cash-flow issue, then you might be able to easily salvage the situation. CARES Act legislation allows for confirmed Chapter 13 plans to extend to seven years, instead of the five they were. In some cases, trustees are allowing informal suspensions of payment, or are offering a plan to catch up. In other cases, a formal plan modification might be necessary.
Either way, if you have simply seen a reduction in income due to the current financial issues, or if you otherwise can expect to be back on your financial feet in due time, then you might have a way to salvage your bankruptcy.
The Flexibility of Payment Options Depends on What Drove Your Approval in the First Place
Whether or not you will have the flexibility to adjust your plan will be greatly dependent on how the amount you are paying was calculated. Was it based on your assets or on your income? If the plan was income-driven, and your income changes, then it is not generally very difficult to have the plan modified. However, if the plan was based on the value of non-exempt assets, creditors will need to get the amount that was originally calculated. You might be able to modify the payments, but the sum of the required payment will not change.
Options for Fixing Chapter 13 Plans
If your situation is permanent and you do not think you will be able to catch up quickly, then there are a few other options. First, your plan might be modified. You can propose a plan that is reasonable, based on the amount of income you have. You might also be able to convert your bankruptcy to a Chapter 7.
Your case might also be available for dismissal, which is always an option with Chapter 13. This would allow you to start a new case that comes with its own timelines and values. Finally, in certain, specific circumstances, you might be able to get a hardship discharge. This would give you the benefits of a discharge but you would not be required to complete the payment plan.
Your next step should be contacting an experienced bankruptcy attorney who can help you find the right way forward. Do not hesitate to reach out to The Law Offices of Paul Y. Lee for a free consultation.