You may be able to get your Chapter 13 payments lowered
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Many people who enter Chapter 13 bankruptcy do so to stop the foreclosure of their home or repossession of their auto. But it's important to understand that Chapter 13 plan repayments are usually tough to stick to throughout the repayment period – typically three to five years – and will not leave you much wiggle room in your budget. For many consumers, it may be advantageous to file a Chapter 13 to stop a foreclosure and buy some time to figure things out, then convert to a Chapter 7 for faster and more complete debt relief. But for those in Chapter 13 who may be struggling to make payments, there are some way to get your plan payments lowered.
Will the Trustee automatically lower your payments?
The Trustee is the person that your attorney will most often deal with during your bankruptcy case, not the assigned judge. The Trustee acts to protect your creditors and ensures that you repay in Chapter 13 to the full extent that you can afford. If you miss payments or don't pay the full amount due, the Trustee will move to dismiss your case. Rather than allowing it to get to this stage, if your income drops or expenses increase, it's smart to immediately turn to your attorney for help so they can go to bat for you with the Trustee assigned to your case to try and get a modification to your payments. Here are five ways this can happen.
#1 Get a moratorium
This is more of a reprieve from your payments rather than a decrease in the plan. If you lose your job but are confident you'll soon have a new one, you may be able to get a one to three-month break from making plan payments. This is also an approach to consider if you experience a short-term injury or disability that will keep you out of work for a few weeks or a couple of months. Alternately, a large and unanticipated expense may prevent you from making a plan payment.
For instance, if your car breaks down and you need a $1,000 repair or else you will lose your job, you may be able to get a moratorium that will allow you to get the needed repair then resume payments in a month or two. However, a moratorium will not erase those payments, it will just increase the length of time you'll be paying back. For instance, if you get a two-month moratorium and had a 48-month plan, the two months you missed will not count towards the 48.
#2 You take a lower paying job
If you are downsized from your job or can no longer perform your job you may have to take a lower paying job. In this case, your attorney can appeal to the Trustee to lower your plan payments. However, if you quit a higher paying job to take a lower paying one to try and evade some of your debt, the Trustee may reject the request to modify your payments. You must be able to substantiate that you can't find a higher paying job. And if your income increases, you will have to notify the Trustee.
#3 You are self-employed and have a business issue
If you work for yourself and your business take a nosedive because you lost a major client, the industry as a whole is suffering or you have unanticipated expenses, you may be able to get an adjustment to your plan payments. For instance, if you own a landscaping business and your mower dies and you need to purchase new equipment under a lease agreement so that your monthly income will decrease by the lease amount, your attorney may be able to get your plan payments lowered to allow you to stay in business while continuing on with your Chapter 13 plan.
#4 You experience a permanent injury or disability
If you suffer an injury or disability after your Chapter 13 plan starts that will lower your ability to earn income for years to come, you may be able to get an adjustment. You will likely need to provide documentation to substantiate that you have incurred a disability that makes you unable to work full-time or unable to work at the job you once had. If you had the disability going into the plan but didn't inform the Trustee, that could change things. You always want to be 100% forthcoming with your attorney who will then communicate relevant information to the Trustee assigned to your case.
#5 You have to cover new health insurance premiums
If you had insurance coverage through your employer for yourself or your family, but the company stopped covering premiums, you may be able to adjust your plan payments so that you can afford to pay your premiums. Or if you lost one job where an employer paid premiums and took another where the employer does not, this could be taken into account. This is a reasonable reason to claim that your disposable income has decreased and you are entitled to a decrease in your installments.
Your Chapter 13 must be able to catch up the back balances on your secured debt over the life of your repayment plan and usually pay a little towards unsecured debts such as credit cards and medical bills. If lowering your plan payments will not allow you to meet these requirements during a five-year repayment term, your plan can be rejected for modification by the Trustee. What this means is that you cannot afford to continue your Chapter 13 plan. However, you still have the option of converting to a Chapter 7 to deal with your debt. This is a discussion to have with your bankruptcy attorney. It's always better to talk to your lawyer as soon as you know you can no longer afford your plan payments so they can advise you of all the options you have before some of those options expire.
To find out more about debt relief using Chapter 7 or Chapter 13 bankruptcy in North Carolina, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 for a free consultation at one of our offices in Greensboro, Raleigh, Fayetteville, Wilson, Durham, or Garner. Ask about zero down bankruptcy specials to get you on the path to financial freedom today!