Chapter 13 Plans Aren’t Always Set in Stone

There are a few reasons why someone might file a chapter 13bankruptcy versus a chapter 7. One of the most common is to catch up on payments for a home that is about to go into foreclosure. A chapter 13 allows you to stop the foreclosure and put those past due payments into a bankruptcy plan, giving you 3 to 5 years to catch up while you move forward paying your regular monthly mortgage payment.

You may also file a chapter 13 bankruptcy if your income is higher than the median income (amounts are calculated based on the district in which you are filing). When your income is above median, it forces you into a chapter 13 and you pay back some or all of your debt. The amount you pay is, when extremely simplified, a function of your income minus your allowable expenses.

If the last 4-5 years tells you anything, it’s that the economy is unstable and jobs aren’t secure. You may enter a chapter 13 plan because you made above median income and could “afford” to pay back some of your debt. But a lot of things can happen in 5 years. What if you lose your job and can no longer make the chapter 13 payments? What if you keep your job but take a pay cut so that the plan payment no longer fits in your budget?

While a chapter 13 plan payment is “set in stone” at the time it’s confirmed by the court, this does not mean that if you take a pay cut or lose your job that nothing can be done. At my bankruptcy firm, we always hope that our chapter 13 clients don’t have to call us 2 or 3 years down the road to tell us that one of the above scenarios have happened, but in reality we do get these phone calls.

This good news, if you can call it that, is that there are things that can be done. Many chapter 13 plans can be modified to lower a plan payment in many instances, allowing you the extra money in your budget to pay your necessary bills. In some circumstances, you can even convert your chapter 13 to a chapter 7, which means that you no longer have a plan payment, and the debts you included in your bankruptcy are still discharged.

If you find yourself with a loss in income, you need to contact your bankruptcy attorney. The first step is to find out what options are available to you in your unique situation. Your chapter 13 bankruptcy attorney should remain available to you throughout your bankruptcy plan and should be there to discuss any change in circumstances. Don’t take this to mean that they won’t require you to pay additional attorney’s fees. Unfortunately, no one is able to work for free, and any new attorney’s fees that they incur will have to be paid.  But in a chapter 13 modification these fees can usually be put into your modified plan and be paid through the court.

Whatever the reason for your change in circumstances, your first step should be to contact your attorney to see if anything can be done to make your plan more manageable. Modifying your plan may be just what you need to make ends meet.

Submitted by:

Kerry Hammond, Esq.

Bankruptcy Attorney