What are my options if I can't make my Chapter 13 bankruptcy payments because I was laid off?
A Chapter 13 bankruptcy repayment plan requires you to repay your creditors according to the plan you agreed on during your initial bankruptcy filing. This repayment plan generally lasts 3-5 years from the time when you declared bankruptcy. Many things can go wrong during that period of time that may make it impossible for you to actually keep up with the payments you agreed to. If you find yourself unable to make your Chapter 13 repayment plan payments because you were laid off, you should first understand the rules for payment or nonpayment.
Rules for Inability to Pay on a Chapter 13 Repayment Plan
Several factors will control what exactly will happen if you become unable to meet the terms laid out in your Chapter 13 repayment plan. Among them are the reason for the layoff, how far along you are in your repayment plan, and what your financial resources were both before and after the layoff.
Those factors will largely determine the options you have. With less income, you may be able to modify your plan to make the remaining payments more affordable. This may require you to prove to the court that paying the plan as originally agreed to is creating an undue hardship. If you were trying to keep some assets during the Chapter 13 plan, you may want to go ahead and surrender those items and try to get as much paid off as possible in order to finish your discharge earlier.
Alternatively, if you have few assets left and minimal-to-no income, talk to your bankruptcy lawyer about converting to a Chapter 7 plan. A Chapter 7 bankruptcy allows for the discharge of debts without any repayment on your part. It will require you to turn over to the trustee enough non-exempt assets to repay your debts, but don't let this be a big concern: most people who file Chapter 7 have only assets that would be exempted from the liquidation.
Chapter 13 Repayment - Hardship Discharge
It's possible that you could also qualify for a hardship discharge, especially if you were near the end of the plan and the unemployment rate was high in your area. Usually, you will have to meet certain criteria for a hardship discharge, including demonstrating that your creditors received as much under your repayment plan already as they would have had you declared Chapter 7 as an initial matter.
The most important thing to remember is to keep your bankruptcy attorney informed and to let him or her know about your inability to pay as soon as you can. Doing nothing only creates more issues as failure to act can result in your bankruptcy being dismissed, especially if the court believes the layoff was in any way avoidable.