First, let's cover the difference between chapter 13 and chapter 7? Simply put, in a chapter 7, if you qualify for the means test you can go in front of a bankruptcy trustee who will evaluate your assets with the intent of getting all of your debt discharge. In a chapter 13, you make a plan with the trustee to repay your debts over a period of 3 or 5 years. As we all know, a lot can happen in that amount of time, so what if you find yourself unable to make your plan payments? Thankfully, there are options in place for these circumstances.
One option is to petition the court to skip a couple of payments. This is a great option if your situation is temporary and you have a really good reason. The court will usually allow this for 1 to 2 months and then you must resume payments. The amount will then be added to the remaining months. One important thing about this: This can only be done ONCE!
For more permanent changes, a second option is to ask the court for a Chapter 13 plan modification. Again, you will need a permanent reason that substantiates the need for the modification. These include things like a loss of income or large unexpected expenses. You will need to show your updated budget to the court as well.
If the permanent reason is a big loss of income, it is also possible to convert your case to a Chapter 7. Let's say you become injured and have to stop work completely, you are only earning disability and you can no longer make payments, you then convert to a Chapter 7 and unsecured debts get discharged. You must still qualify for a Chapter 7 to do this and if you have filed for a Chapter 7 in the previous 8 years prior to filing the 13, this is not an option for you. In this scenario, there is also the possibility of a hardship Chapter 13 discharge.
As a last resort, if none of these things are possible, the court can dismiss your case and you can attempt to refile at a later date.
As with any bankruptcy-related actions, it is best to consult an attorney to be sure you are making the best decision and that there are not other, more suitable options available. The courts offer many options to help complete the process of bankruptcy and help get you back on your feet. You are doing yourself a great service by researching and talking to someone who is an expert in the field.
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