Chapter 13 bankruptcy is often a lengthy process. The repayment plan alone typically lasts somewhere between three and five years. There are also hearings to attend in court before the filer receives their discharge. Creditor meetings must take place before the repayment plan even begins.
However, the benefits of Chapter 13 bankruptcy are invaluable for those going through a difficult financial time. They receive immediate relief when they file because the courts grant them an automatic stay. Filers pursuing Chapter 13 bankruptcy aren’t subject to income limits or at risk of asset liquidation. They simply need to make payments as negotiated to reduce their debts.
Eventually, if those filing for Chapter 13 bankruptcy complete their repayment plan, the courts can discharge the remaining balance due on their eligible debts. Remaining compliant with the payment plan requires regular income. What happens when someone pursuing a Chapter 13 bankruptcy discharge loses their job?
The repayment plan may become impractical
Throughout a Chapter 13 bankruptcy, the filer makes monthly payments through the courts. The trustee distributes the funds paid by the filer to their creditors in accordance with the established plan. The repayment plan often consumes almost all of the filer’s disposable income. They have very little wiggle room in their budget.
The process of establishing the plan requires input from the trustee assigned by the courts and representatives from their creditors. There is an expectation that the filer commit to paying as much as they can before they become eligible for discharge.
People typically need to maintain their income in order to afford their payments. Job loss may mean that they might not be able to make the next payment as scheduled. Thankfully, it is possible to request that the courts modify the repayment plan.
Filers may be able to reduce what they pay each month based on the sudden drop in their income. In more serious cases where the change in income is more significant and likely to last longer, it may be possible to convert a Chapter 13 bankruptcy to a Chapter 7 case.
Evaluating how job loss may impact the Chapter 13 bankruptcy process can help people protect themselves in a difficult situation. Those who move quickly to address the issue can potentially proceed with their bankruptcy instead of risking having the courts dismiss their case because they have violated the repayment plan.
