If you fall behind on your Chapter 13 plan payments, your bankruptcy trustee or a creditor will usually ask the court to dismiss your bankruptcy case. However, you still have many options available to you to save your bankruptcy and obtain a discharge. Read on to learn more about your options if you have fallen behind on your Chapter 13 plan payments.
(To learn about the Chapter 13 plan, including what it is, what you must pay through it, and more, see our Chapter 13 Repayment Plan area.)
Many bankruptcy debtors miss plan payments because of a temporary financial emergency. After their emergency is resolved, most debtors are able to get caught up if given enough time. If you are facing dismissal, you can explain your circumstances to the court and request more time to catch up on your plan arrears. Most courts will allow you more time or add a specific catch up plan to your Chapter 13 plan to cure your default.
If your financial emergency will not get resolved in a short period of time (for example, you lost your job or your pay was permanently reduced), then you can ask the court to modify and reduce your monthly plan payments. To modify your payments, you will need to propose a new payment amount that you can afford and provide the court with documentation showing your changed circumstances and new budget. However, keep in mind that if your Chapter 13 plan is only paying debts that have to be paid in your bankruptcy, then you may not be able to reduce your payment amount. For more information on how to reduce your plan payment amount, see Modifying Your Chapter 13 Plan Payment.
If you are unable to continue with your Chapter 13 bankruptcy, you may be eligible to receive a hardship discharge. A hardship discharge is a discharge that is granted even though you have not completed all of your required plan payments. The court will analyze your financial situation and consider what is in the best interest of all parties involved before granting a hardship discharge. Also, receiving a hardship discharge does not wipe out your priority debts that have to be paid in a Chapter 13 such as certain taxes or domestic support obligations (like child support and alimony). To learn more about the hardship discharge, see The Chapter 13 Hardship Discharge.
Similar to the hardship discharge, if you can no longer afford to be in a Chapter 13 bankruptcy, you can convert your case to Chapter 7 and receive a quick discharge. When you convert, you will be assigned a new bankruptcy trustee and will need to provide proof that you now qualify for a Chapter 7 bankruptcy because your new circumstances do not allow you to afford a Chapter 13. However, like a hardship discharge, converting to Chapter 7 will not get rid of your priority debts or allow you to get caught up on your mortgage arrears. (To learn more see, Converting a Bankruptcy Case From Chapter 13 to Chapter 7.)
If none of the options above allow you to meet your goals, you can always let your case get dismissed and refile another Chapter 13 bankruptcy. This may be your best option if you cannot afford your Chapter 13 right now but you are not able to lower your payments or convert to Chapter 7 because you have priority debts or mortgage arrears you need to pay. Once your financial situation improves, you can file another Chapter 13 to pay your debts. But keep in mind that depending on when you file, you may have to ask the court to extend the automatic stay in your subsequent bankruptcies. (To learn more, see How Bankruptcy Stops Your Creditors: The Automatic Stay.)