What Happens If I Lose My Job During the Chapter 13 Repayment Period?
When approving the repayment plan for a Chapter 13 bankruptcy, the bankruptcy court takes into account the income of the debtor. In order to be eligible for Chapter 13 bankruptcy, the debtor needs to have a steady income that will allow her to complete the terms of the repayment plan. At the same time, the debtor does not necessarily have to have a substantial or significant monthly income in order to be eligible for the benefits of Chapter 13 bankruptcy. What happens when a debtor who is in the middle of completing a Chapter 13 bankruptcy plan loses his or her job and cannot make payments to creditors? What options are available for a bankruptcy discharge?
How Chapter 13 Bankruptcy Works
To better understand what is likely to happen if a debtor loses his or her job during the Chapter 13 bankruptcy repayment period, it is important to understand how Chapter 13 bankruptcy works.
When consumer debtors in Oak Park file for Chapter 13 bankruptcy, they are not eligible to have their debts wiped out immediately. At the same time, debtors do not have their property completely liquidated outside of exempt assets in a Chapter 13 bankruptcy. To be clear, Chapter 13 bankruptcy is different from Chapter 7 bankruptcy in that debtors submit a proposed repayment plan to the court in which they make payments to creditors over a period of three to five years. Once that period is over, if the debtor has completed the terms of the payment plan, she or he may be eligible to have remaining debts discharged. As such, Chapter 13 bankruptcy is known as a reorganization bankruptcy instead of a liquidation bankruptcy (like Chapter 7).
Work With a Bankruptcy Lawyer to Change Your Payment Amounts
If you lose your job but are able to find another lower-paying job, you may still be able to complete your Chapter 13 bankruptcy in order to have your debts discharged. With the help of an experienced bankruptcy attorney, you can petition the court to change the amount of your payments. In order to do this, the debtor needs to submit a new repayment plan to the court that includes information about the debtor’s current income (after losing a job and getting a new one).
It is possible that the new repayment plan will involve the debtor paying less altogether than the initial plan. The court can still approve such a plan as long as it matches up with the debtor’s current income. To be clear, if the court approves a new bankruptcy repayment plan based on a lower income, the debtor can end up having more debt discharged at the end of the repayment period.
Converting from Chapter 13 to Chapter 7
In some situations, the debtor may decide to convert a Chapter 13 bankruptcy case to a Chapter 7 bankruptcy case. In order to be eligible to convert, the debtor will need to show that his or her her financial circumstances have changed and that he or she cannot make payments on the Chapter 13 repayment plan. In addition, the debtor typically will have to pass the means test. This may be a better option for a debtor who has lost a job and does not have another job with a steady income.
However, before you begin the process of converting your case from a Chapter 13 to a Chapter 7 bankruptcy, you should speak with a lawyer about whether you may be eligible for a hardship discharge in your Chapter 13 case. This might be possible if your financial circumstances have changed and you have made significant payments toward completing the plan.
Contact an Oak Park Bankruptcy Attorney
Do you have questions about Chapter 13 bankruptcy? An experienced Oak Park bankruptcy lawyer can discuss your situation with you and your options for discharging your debts. Contact the Emerson Law Firm to learn more about how we can assist with your case.
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