Chapter 13 bankruptcy is an attractive option for people who just need to reorganize and better manage their debt. In order to accomplish this, Chapter 13 requires people to enter into a repayment plan that is approved by the court and managed by the trustee. Your creditors have to halt any collection efforts and are required to make a good-faith effort to work with you on repayment terms that you can afford. The payment plan can take up to five years to repay your debts.
People facing bankruptcy are typically weathering a great deal of financial instability. Five years is a long time, and as a result, our clients are often worried about what may happen if their situation changes. Thankfully, it is possible to modify your Chapter 13 plan and can be relatively painless if you are working with an experienced bankruptcy attorney.
Reasons You May Need to Modify Your Payment Plan
When you propose your Chapter 13 payment plan, the trustee is going to make sure you can actually afford to make the payments. At the same time, the trustee is obligated to make sure your creditors will be treated fairly and that you are repaying your debts as quickly as you can. As a result, you need to have a good reason to modify your Chapter 13 plan. Here are some of the situations that our clients have been in that have led to a request for modification:
● Loss of employment
● Serious or long-term illness
● Sudden or unexpected major expenses
These are just some examples, but any significant change in your life could be a reasonable basis for modifying your payment plan.
Modifying Your Payment Plan Prior to Confirmation
As you may already be aware, the first thing you need to do before you start making payments is to make a proposed payment plan. The proposed plan will be reviewed by the trustee and your creditors, and will ultimately need to be confirmed by the court.
If your Chapter 13 payment plan has not yet been confirmed, you or your attorney can simply file a modified plan. The modified plan will then be reviewed and considered by the trustee and your creditors. If there are no objections or other problems, your modified plan will be confirmed by the court, and you will then begin making your payments.
Modifying Your Payment Plan After Confirmation
The modification process is a little more difficult if your payment plan has already been confirmed by the court. In that case, you or your attorney will have to file a motion asking to modify your plan and explaining your reason for doing so. The motion will be filed with a proposed amended plan and updated financial records that support the modification. If there are no objections to the modification, the court will typically confirm the amended plan after a hearing.
It’s important to note that each bankruptcy court has its own rules regarding certain administrative steps that must be taken as part of the modification process. For this reason, non-lawyers can find the process confusing and complicated.
Potential Obstacles to Modifying Your Chapter 13 Payment Plan
People often file for Chapter 13 bankruptcy because they want to keep certain assets, most often their home. When asset retention is important, the law requires that the chapter 13 plan pay unsecured creditors as much as the creditors would have received in a chapter 7 case. People in this situation often find themselves unable to reduce their plan payments significantly to meet the payment requirement to unsecured creditors.
Another potential obstacle is that the bankruptcy code requires that you complete the plan within five years. As a result, reducing the payments to certain creditors may not be feasible.
It can also be problematic if your change requiring the modification appears to be permanent. For example, you may be unable to work because you have suffered a permanent disability. In this situation, modifying your Chapter 13 plan may not be a realistic option.
Alternatives to Modification
If you cannot modify your plan or it just doesn’t make sense, you are not obligated to continue on a payment plan that you can’t afford. The bankruptcy code provides a couple of options.
Converting your case to a Chapter 7 bankruptcy. You or your attorney can file a motion with the court asking permission to convert your Chapter 13 case into a Chapter 7 case. While you may not be able to keep the assets you had hoped to, you can still get relief from your debt and make a fresh start.
Seeking a Chapter 13 hardship discharge. If you can’t modify your plan and you don’t want to convert your case to Chapter 7, you can ask the court for a hardship discharge. A hardship discharge isn’t as broad as a typical discharge, but it is an option that is typically used for eliminating “unsecured” claims such as credit card debt.
Contact a Minnesota Bankruptcy Attorney Today
Bankruptcy is a powerful tool for resolving financial difficulties and building a better future. Hiring an experienced bankruptcy attorney can help you maximize the value of your bankruptcy while avoiding the pitfalls and problems that can jeopardize your case. At Kain & Scott, we help Minnesotans navigate the bankruptcy process to achieve their goals. With decades of experience, we give our clients compassionate and dedicated legal representation to ensure the best possible outcome. If you’d like to schedule a free consultation with one of our experienced Minnesota bankruptcy attorneys, call us at 800-551-3292 or contact us online.