Can my Chapter 13 plan change with my circumstances?

A:

There is one very common concern among my clients that are preparing a chapter 13 bankruptcy plan of repayment: Is this written in stone?  Will I have to make this payment no matter what for the next three (or five) years?  The answer is, in most cases, no.  The courts understand that things happen in your life, such as illness, job loss, the birth of another child, the need to replace a car (and add a car payment), that can make it no longer possible for you to meet the current plan requirements.  That is why there is a procedure to file a modified plan.

Some people are in bankruptcy to give them time to address "must-pay" debts, such as taxes or a mortgage arrearage, over time.  If this requires a payment over the maximum plan length of five years, then they may have few choices available to them if they can no longer afford that payment.  However, if it is just old credit card debt, medical bills, or an unpaid loan, then there are options.

You Do Have Options

First, you can change the amount of the payment by filing a modified Schedule I if your income went down, and/or a modified Schedule J if expenses went up, like child care for that new baby.  The resultant disposable income can then be used to recalculate your monthly payment on a modified plan.

Second, if your plan is for less than five years, you can extend the term of the plan at the lower payment, which can be quite helpful if there are certain debts that you still must pay.

Third, what if there isn't any money left over?  What if you are now barely getting by?  In most cases, i.e. those where there is no remaining balance on a "must-pay" debt, you can simply convert your case to a chapter 7, wipe out your remaining debt (other than student loans and certain taxes), and move on with your life with a fresh start.

What Do I Do?

My advice to you is what I tell my clients: this is your plan.  Stick to it.  If, in the future, however, circumstances change and you can no longer afford the payment, call your attorney. He or she may be able to do something that will address the problem and still get you the relief you need.  Don't wait until you are in so deep that you cannot get out.

Have more questions about bankruptcy?  Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey.  It will give you the answers you need all in one place.  Then call me at 888-857-8418 or contact me through this site for an appointment for a free consultation to discuss your case.