The Chapter 13 bankruptcy is a 3 to 5 year payment plan. The first question many Chapter 13 clients ask is what will happen if they cannot afford their Chapter 13 plan payment down the road. For example, what if they lose their job, or get furloughed, or unexpected expenses occur during the plan. The answer is simple, your Chapter 13 plan can be modified or suspended to fit the changes that occur during the course of the plan.
What happens if I lose my job while in Chapter 13?
If you lose your job during your Chapter 13 you have a few options. First, if you qualify and the issues surrounding your case make it beneficial to you, than you can convert your case to a Chapter 7. Second you can modify the plan to reduce your payments to reflect your current income and expenses. Or lastly, you can attempt to suspend the payments on your plan if you are expecting a new source of income. If your income changes during the course of your Chapter 13, you should immediately contact a bankruptcy attorney.
What if I have unexpected expenses during my Chapter 13?
As stated above, you can file a motion to suspend your plan payments. For example, if your car breaks down and you need to pay $3000 to repair it, you can suspend your monthly Chapter 13 plan payments to allow you to pay for those repairs. In most cases, your Chapter 13 will not be extended for those months that your plan payments are suspended. For example, if your plan payments are suspended for three months during your 5 year chapter 13 plan, you will not have to pay an additional 3 months at the end of your 5 year term. If unordinary expenses occur during the course of your Chapter 13, you should immediately contact a bankruptcy attorney.
What do I need to file a motion to modify or suspend plan payments?
Your attorney will be able to tell you what documents they will need to file the motion. Common documents will include pay statements, receipts for extraordinary expenses, or documentation showing that you became unemployed or your income changed. Simply put, your attorney will need proof of the reason you need to file the motion to modify or suspend.
Will I always be able to modify my plan payments?
Although you can usually file a motion to modify your plan payments, there are situations where modifying your plan will not work. In many cases, people file Chapter 13 bankruptcy to pay off mortgage arrears, child support, back taxes and other priority debts. Your attorney will be able to explain these priority debts. If you have any of these types of debts, your Chapter 13 plan must pay 100% of these debts. Therefore, any modification to your plan must take into account that these debts must be paid in full by the end of your Chapter 13 plan. For example, if you owe $60,000 in mortgage arrears, your plan payment must be at least $1000 per month over the 5 years (60 months) to pay back the mortgage arrears. Anything less would make the plan unfeasible.
In any case, you should always contact your bankruptcy attorney if you have any unexpected financial changes during your Chapter 13 plan.