The repayment term for Chapter 13 bankruptcy is three to five years. During that time, it is not uncommon for some people to experience changes in finances that interfere with their ability to stay current on their bankruptcy obligations.
Job loss, serious illness, death, and divorce are some of the many reasons why some people encounter difficulty making their bankruptcy payments. Fortunately, the law offers the following solutions for people who are unable to pay their Chapter 13 bankruptcy payments.
Chapter 13 bankruptcy allows eligible debtors to suspend payments for short-term financial emergencies. To qualify, trustee approval is necessary and the suspension term is three months or less.
Chapter 13 bankruptcy plan modification is an option for debtors who are experiencing a temporary setback in their ability to make on-time payments. The interruption must last longer than three months. Debtors must also maintain an income level that allows them to make ongoing Chapter 13 payments. Debtors who pursue dismissal do not retain the protection of the automatic stay and are subject to debt collection calls, wage garnishments and foreclosure or repossession.
Changes in income like job loss, hospitalization, etc., that cause long-term income loss or an inability to pay are generally not eligible for modification. There are also circumstantial limitations to bankruptcy plan modifications.
Depending on the cause of their current financial challenges and amount of income, debtors may not qualify for bankruptcy modification but qualify for Chapter 7 bankruptcy protection if their income passes the means test. Chapter 7 can help those experiencing long-term financial stress to start over when they are no longer able to meet Chapter 13 bankruptcy requirements.