What Happens When Your Chapter 13 Repayment Plan Flops?
Image Source: MorgueFile
Making it through your full Chapter 13 repayment term can be a challenge – particularly if Chapter 7 was a better alternative, but you decided to try Chapter 13 because you wanted to try and save a house you couldn’t afford or some other financial hardship. Perhaps you may be able to manage your plan but you overspent and got behind or had an emergency expense crop up like a car repair. Either way, the outcome if you can’t keep up with your Chapter 13 North Carolina bankruptcy repayment plan can worsen your financial problems.
Understand why your repayment plan failed
If your repayment plan fails, before you decide what steps to take next, you need to understand why your plan failed. Was it unmanageable to start with, but you pushed for it anyway? Did you lose your job, have an increase in expenses or a decrease in income? Did you have an accident or are you suffering an illness that has affected your income or expenses? Whatever financial hiccup led to the missed payments must be understood and analyzed to make a better plan for the future.
What is a motion to dismiss?
If you miss two or more payments, the Trustee assigned to your case will likely issue a Motion to Dismiss. This simply states that you have not met your obligations under the plan and asks the court to dismiss your Chapter 13 bankruptcy. If you want to avoid this, you can appeal to the court that the missed payments were a one-time issue and explain how you can get caught up – they may let your case stay open if you present a compelling explanation and plan to correct.
Request a payment plan modification
If your income has dropped or expenses have increased, you may be able to modify your Chapter 13 repayment plan to get lower payments. This involves submitting a new repayment plan along with documentation to substantiate your new income and/or expenses along with proof that you can sustain the new lower repayment plan. Depending on your past due obligations, the plan may no longer service the debt within the maximum five-year repayment term and could be rejected.
Request a hardship discharge
If your situation is more serious, you can ask for a hardship discharge of your Chapter 13 debts. This would wipe out your unsecured debts like credit cards and medical bills, but would not allow you to keep your home if you’re behind on payments and you filed Chapter 13 to help cure the delinquency. This is rarer than any of the other options to cure missed payments in Chapter 13 bankruptcy. It may be worth asking for the hardship discharge, but it’s a long shot.
Refiling Chapter 13 is an option
If your Chapter 13 fails, you can always wait out the motion to dismiss and then file another Chapter 13. However, you should know that your automatic stay will only last 30 days compared to the full 90 days that usually comes with a fresh Chapter 13. You can request a hearing to extend this if you can prove you didn’t use bad faith when you allowed the first Chapter 13 to fail then refiled. However, this will increase the cost of your case so you may not want to bother.
Consider converting to Chapter 7
If you chose Chapter 13 because you didn’t qualify for Chapter 7 before, your changed circumstances may mean you can opt for a Chapter 7 now. This can allow you to quickly shed much more debt than a Chapter 13. However, if you’re behind on secured debt payments such as your mortgage or car note, you may have to work out a deal with your creditor or surrender the item that secures the debt. But if you can’t afford your Chapter 13 plan, you may need to consider Chapter 7.
Talk to your North Carolina bankruptcy attorney about your options if you can no longer afford your Chapter 13 repayments. If you’re deep in debt and looking for a solution for a brighter financial future, contact the Law Offices of John T. Orcutt today. Call +1-919-646-2654 for a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.