Chapter 13 bankruptcy requires a lengthy repayment plan overseen by a court-appointed trustee. The filer makes between three and five years of monthly payments to reduce the balance owed on their debts. The amount that each creditor receives depends on the terms negotiated for the repayment plan.
Eventually, filers are eligible to discharge the remaining balance on nonpriority, unsecured debts. The terms of a repayment plan depend in part on the amount of debt a person owes and their income. If a filer loses their job while in the midst of a Chapter 13 bankruptcy, they may need help choosing the best path forward.
The plan or the bankruptcy may change
There are two ways for those who suddenly lose their jobs or otherwise experience a drastic reduction in income during Chapter 13 proceedings to respond. Filers can modify their repayment plans based on lower income levels. The courts can agree to alter the amount due each month and the amount each creditor receives based on the new financial circumstances of the filer.
In scenarios where job loss results in a total cessation of income and finding a new job proves challenging, filers may see their income drop low enough to pass the means test for a Chapter 7 bankruptcy. Especially if they are not at risk of losing property to liquidation because they can exempt their assets completely, filers can ask the courts to convert a Chapter 13 bankruptcy to a Chapter 7 case.
Job loss and other hardships can force people to modify their payment plans or convert their bankruptcy cases. Evaluating both options can help those concerned about completing a Chapter 13 bankruptcy respond effectively to financial pressure.