A Financial Emergency During Chapter 13
A Chapter 13 bankruptcy case is a repayment plan over three to five years. The idea is that the debtor pays all he or she can afford to creditors, and any unsecured debt that is unpaid at the end is discharged. Consequently, there is very little money available in case of a financial emergency.
If you have a financial emergency and are unable to pay your Chapter 13 payment, speak with your bankruptcy attorney immediately. Your attorney may be able to extend your plan or waive a payment. However, your plan may not extend past 60 months. If the financial emergency is short-term, the trustee may also allow you time to “catch up” your payments.
If you are experiencing a long-term financial change, you should discuss modifying your repayment plan. Your attorney must propose a new plan and modified payments to the court along with evidence of a change in financial circumstances. A modification is generally successful if you are repaying debts that are not required to be paid during your bankruptcy case.
A serious financial change that makes repayment impossible may qualify you for a hardship discharge. A hardship discharge may be granted before the end of your case when modification is not practical. Hardship discharges end the bankruptcy case, but there are limitations on discharging some debts prematurely.
Conversion to Chapter 7 may be an option if you can no longer afford monthly payments to unsecured creditors. If you convert from Chapter 13 to a Chapter 7, any debt incurred since your Chapter 13 filing date can be included in the Chapter 7 case. For example, if you are repaying debts in Chapter 13 and have a medical emergency that prevents you from working and leaves you with new medical bills, you may convert to Chapter 7 and discharge the medical debts.
Finally, it may make sense to dismiss the current bankruptcy and re-file at a later time. This is a last option because it creates two bankruptcy cases on your credit report, but it may be necessary to save a home from foreclosure or to manage other debts. A second bankruptcy that is filed within a year after dismissal comes with some restrictions, including a limit on the bankruptcy automatic stay.
Some financial change occurs in nearly every Chapter 13 case. The key to managing change is to communicate early with your bankruptcy attorney. The federal bankruptcy laws are flexible to accommodate financial changes, and your attorney can discuss your options with you.