What are the ways that a Chapter 13 plan can be changed or ended?
Alternatives are available for ending a Chapter 13 bankruptcy
There are four ways that debtors are allowed to terminate a Chapter 13 bankruptcy if their financial circumstances change during the case's duration of three to five years.
Generally, a withdrawal from bankruptcy is proposed when the debtor's finances have improved, allowing creditors to be paid rather than have the debts discharged. A motion for withdrawal is filed with the U.S. Bankruptcy Court, followed by a meeting with the court trustee to discuss the change in circumstances. Then, all creditors listed in the bankruptcy must be notified.
Withdrawing a Chapter 13 case isn't a step to be taken lightly. Just as finances improve, they can also be reduced again and lead to another try at bankruptcy. If that takes place within one year of the withdrawal, the automatic stay that halts creditors' collection efforts lasts only 30 days rather than the duration of the case.
However, according to FilingForBankruptcyOnline, the court usually grants a voluntary withdrawal rather than continue with a lengthy legal process. In addition, creditors aren't likely to object because the debts are likely to be paid at a higher rate than if the case were to proceed.
When finances worsen, debtors may be able to modify their Chapter 13 case by asking the court to suspend the repayment plan for a few months, reduce the size of the monthly payments or extend the length of the case so lower installments can be collected over a longer period. If a debtor's income has increased, the trustee may insist on a plan modification for larger payments.
Another option is to convert the case to a Chapter 7 bankruptcy, a liquidation process. Unlike Chapter 13, in which property is protected for the life of the case, debtors in Chapter 7 must sell their non-exempt property to pay creditors. In addition, they receive limited protection to prevent a home foreclosure.
Court officials typically prefer that debtors convert their case rather than pursue the last alternative. For individuals who claim hardship, all debts except those that are nondischargeable in Chapter 7 action are discharged by the court.
To qualify, debtors must show that circumstances beyond their control prevented them from continuing with their payment plan. They are also required to have paid creditors as much as they would have received if the case was initially filed under Chapter 7 and assets were sold to repay the debts.