People sometimes call Chapter 13 bankruptcy a wage earner’s plan. The goal is to help someone with a reasonable income and valuable property take control over frustrating financial challenges. Instead of liquidating certain assets before quickly discharging their debts, the filer negotiates a repayment plan that allows them to protect their resources.
After making three or more years of monthly payments in accordance with a specific payment plan, the filer can discharge the remaining balance due on eligible personal debts. Typically, filers have to commit the vast majority of their disposable income toward payments and have to make the payments on time to the trustee appointed by the courts every month to remain in compliance with the plan.
Sometimes, unexpected changes to personal circumstances can make continued compliance more difficult. The plan likely reflects the filer’s current income levels. What happens if they lose their job when there are still more payments required?
Job loss can complicate bankruptcy cases
Those completing a Chapter 13 repayment plan typically do not have resources set aside to cover their costs for multiple months. Much of their expendable income goes directly to creditor payments. Therefore, the sudden loss of their income could leave them at risk of falling behind on their payments and becoming ineligible for their discharge. There are two solutions available in that situation.
The first has to do with modifying the repayment plan. Filers who have experienced temporary financial hardship can request a formal modification of the payment plan from the courts. It may be possible to adjust the repayment plan based on the change in household circumstances.
In scenarios where the job loss may relate to a business closing or medical issues experienced by the filer, they may be eligible for a hardship discharge. If the filer cannot reasonably go back to work and continue making payments, they may qualify for an early discharge in unusual circumstances.
The worst thing a filer can do is to ignore the looming possibility of falling behind until they have already failed to make payments during a Chapter 13 bankruptcy. They can endanger their financial future by delaying appropriate action. Having the right help can make it easier for a filer to explore their options and properly respond to challenges that could endanger their eligibility for a discharge.
