Recently on our bankruptcy forum a debtor asked, “What are our options if my spouse and I have been making $1,000 payments on our Chapter 13 debt repayment plan, but my husband recently suffered a job loss and this is no longer possible?”
Filing Chapter 7 bankruptcy may allow debtors to discharge certain unsecured debts. Filing Chapter 13 bankruptcy may allow debtors to create a debt repayment plan to repay a portion of their debts over a 3 or 5 year period.
Some debtors may not qualify for Chapter 7 initially due to income restrictions and may be forced to file Chapter 13 bankruptcy. Later, however, debtors, who filed Chapter 13 bankruptcy and suffered job loss, may no longer be able to meet their Chapter 13 debt repayment obligations.
Options for Chapter 13 repayment plan after a job loss
Unfortunately, if you filed Chapter 13 bankruptcy and created a debt repayment plan the plan was created with the expectation that you would have a steady stream of income over the debt repayment period. If your spouse suffered a job loss continuing the plan may not be feasible.
The first step is to contact a bankruptcy lawyer or the lawyer you used for your first bankruptcy and discuss your options. One option is to request a deferment of payments. If granted, this may allow your husband time to find new employment and continue your plan payments.
If this is not possible or it will not allow sufficient time to continue to make plan payments, it may be possible for your lawyer to help you modify your Chapter 13 bankruptcy plan, dismiss the Chapter 13 plan, or convert your plan to a Chapter 7 bankruptcy.
Converting to a Chapter 7 bankruptcy after a job loss
Converting your case to a Chapter 7 bankruptcy after a job loss may be possible with the substantial decline in your income. Under Chapter 7 bankruptcy you would not be making monthly payments to creditors, but certain unsecured debts which were not dischargeable under the Chapter 13 bankruptcy plan may now be discharged.
The downside to Chapter 7 bankruptcy- and it’s a biggie- is that it may be impossible to protect certain assets, including your home or your cars. In fact, if your assets are not protected by your state or federal bankruptcy laws a trustee may have the legal right to sell them and use the proceeds from the sale to repay your creditors.
Under some conditions, you may be able to negotiate with your creditors and find a way to protect certain assets, but if not, you could lose them.
Before converting to Chapter 7 it’s imperative you understand the legal ramifications.
Dismissing the Chapter 13 bankruptcy after job loss
Another option after a job loss if you cannot make your Chapter 13 bankruptcy payments is to dismiss the case altogether. Unfortunately, this could leave you in the position you were prior to bankruptcy. Your assets, such as your car, could be in jeopardy of repossession and you may be on the verge of home foreclosure, especially if your lenders are not willing to negotiate or establish a new debt repayment plan.
Modifying your Chapter 13 bankruptcy plan after job loss
Your final option is to modify the terms of your Chapter 13 bankruptcy repayment plan. It’s hard to know for sure what your lenders are willing to do until you discuss your options with them. Talk to your lawyer for more information about a Chapter 13 modification.
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