Unable to Make Chapter 13 Payments: What Now?

An individual unable to make their chapter 13 payments has options. Normally, in best case scenario, a person files a bankruptcy case, makes the payments for three or five years and has the case discharged. Sometimes, however, a person may miss payments, lose their jobs or are unable to pay. This can cause the automatic stay—in place since the bankruptcy case was filed—to be lifted. Creditors can start or continue legal proceedings such as foreclosures, wage garnishments or lawsuits. However, a person unable to pay their chapter 13 payments does have options.

Request Modification

Anyone who misses one or more chapter 13 payments should petition the bankruptcy court for a modification of their repayment plan. The modification may suspend payments for a couple of months. The court would rather have an individual continue to pay their mortgage payments than forsake them to make chapter 13 payments.

Try a Hardship Discharge

If someone is not able to make their payments because of a loss of a job or medical condition which prevents them from working, the person can request a hardship discharge. The discharge means that the bankruptcy court will discharge their debts. However, according to the U.S. Bankruptcy Court, the individual must meet three conditions. For instance, the person’s circumstances must be beyond their control such as their employer going out of business. Also, the creditors listed in the chapter 13 must have received as much money as they would have if the individual had filed chapter 7 bankruptcy. The third condition is for a modification to a repayment plan can’t be an option.

Dismissal or Conversion Are Other Options

The individual can opt to voluntarily dismiss their chapter 13 case. This means the person would no longer have legal protection against foreclosure, wage garnishments or future lawsuits. Another option is to request that a chapter 13 be converted into a chapter 7. In other words, debts would be discharged without repayment. However, chapter 7 offers limited protection. Although it does stop lawsuits and garnishments, it doesn’t stop foreclosures.

Immediately Contact a Bankruptcy Attorney

According to Michael J. Macco, chapter 13 bankruptcy trustee, it’s vital to contact their bankruptcy attorney—or a bankruptcy if they don’t have one—if an individual can’t make their chapter 13 payments. The attorney will go over all the options the person has or talk with the trustee.

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