What Should I Do If My Chapter 13 Plan Becomes Unaffordable?

Hundreds of thousands of debtors file for Chapter 13 bankruptcy every year, according to data from the US Bankruptcy Courts. In Florida alone, an average of more than 10,000 Chapter 13 cases have been filed each year during the last few years, with a total of 10,049 Chapter 13 cases filed in Florida in 2023. When an individual files for Chapter 13 bankruptcy, part of the process involves creating a repayment plan that will last for a period of three to five years. As part of the terms of that repayment plan, the debtor will make routine payments — typically on a monthly basis — that will go toward repaying secured and priority creditors first. The total amount that must be repaid during the course of the repayment plan will depend on a number of factors, including the total amount and type of debt, the debtor’s disposable income, and relevant Florida exemptions.

The Chapter 13 bankruptcy process presumes that the debtor will maintain their job and income during the length of the repayment plan, and since it requires regular payments, this type of bankruptcy is commonly known as a wage-earner’s bankruptcy. However, unexpected events happen. Florida residents lose their jobs, experience layoffs at work, and suffer disabling injuries and illnesses that result in their inability to earn a wage. Under such circumstances, their Chapter 13 plan may become unaffordable. What can you do if you are in this situation? Our St. Petersburg bankruptcy attorneys can help.

Seek a Plan Modification 

If you are still working but have had a change in circumstances, you may be able to seek a modification that can lower the amount of your Chapter 13 plan payments. In order to receive a modification from the court, you will need to prove that you experienced a change in circumstances, such as a layoff and new job with less pay, or experiencing a disability that only permits you to work on a part-time basis or in a different and lesser-paying role.

Find Out About Your Eligibility for a Hardship Discharge 

Depending on how much of your Chapter 13 plan you have completed, you could be eligible for something known as a “hardship discharge.” While these are not commonly granted, if you experienced a change in circumstances beyond your control and those circumstances are unlikely to change in the future, the court can then look at the amount of money you have paid. If your creditors received the same payment (or more) that they would have if you had filed for Chapter 7 bankruptcy and exempted relevant property, the court may be willing to grant a hardship discharge. Only debts eligible for discharge under the Bankruptcy Code can be discharged in a Chapter 13 hardship discharge.

Consider Converting to Chapter 7 Bankruptcy 

If your circumstances have changed so substantially that you are unable to make even court-lowered or modified payments on a Chapter 13 plan, you may be able to convert to a Chapter 7 bankruptcy. You will need to meet the eligibility requirements for Chapter 7 bankruptcy, meaning that you will have to pass the means test.

Contact a St. Petersburg Bankruptcy Lawyer Today for Assistance 

If you are struggling to make payments on your confirmed Chapter 13 bankruptcy plan due to a change in your financial circumstances, you may have multiple options. It is important to get in touch with an experienced St. Petersburg bankruptcy attorney at the Law Offices of Stephen Barszcz as soon as possible to find out about a plan modification, hardship discharge, or conversion to Chapter 7 bankruptcy. Contact our firm today to find out more about how we can assist you.

Sources:

uscourts.gov/data-news/reports/statistical-reports/bankruptcy-filing-statistics/bankruptcy-statistics-data-visualizations

law.cornell.edu/uscode/text/11

uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/discharge-bankruptcy-bankruptcy-basics