What happens when you can’t make your Chapter 13 plan payments?
Life has a way of continuing to change, not always for the better. Your goals may change as well.
The house you had to keep at the beginning of the plan may not seem as important when its cost dwarfs the rest of your budget.
Don’t despair. Chapter 13 is flexible.
The ability to change the terms of a confirmed Chapter 13 plan when circumstances change is one of Chapter 13’s most appealing features.
Your Chapter 13 plan is not set in cement. Modification of the plan allows it to adapt to the changes in your financial life over a number of years.
Change is possible
Section 1329 allows plan payments to be increased or decreased. The payment period can be reduced or extended, but not beyond 60 months.
The treatment of a claim or a class of claims can be changed. Property can be surrendered. Claims who’ve gotten paid from other sources can be reduced.
You can change the terms of your plan to bring yourself current to the modified plan.
Local practice may permit you to suspend payments altogether for a while.
In short, bankruptcy law is prepared to adapt to change.
How are Chapter 13 plans changed?
Just as your original Chapter 13 plan required court approval, so does a modification.
Creditors are entitled to notice of the proposed changes and an opportunity to be heard on the modified plan.
Depending on the nature of the change, you may need to file current income and expense statements or other support for the need to change the plan.
While your plan modification could reduce what you pay into the plan based on lowered income or increased expenses, your plan will still have to give unsecured creditors at least what they would have gotten had you filed Chapter 7.
Often, that “best interests of creditors” test is meaningless, since your creditors may not have gotten anything in a Chapter 7.
Once the modification is approved, the modified plan becomes the confirmed plan.
Other options when you struggle with your plan
Other alternatives when a Chapter 13 plan hits trouble include
Check with your lawyer just as soon as you see the need to modify your plan or take other steps to deal with your current circumstances and your old debt.
Image courtesy of Jessica Mullen.