When you start getting overwhelmed by debt, you may start missing some of your payments and consider what will happen with your bankruptcy. Have you started getting phone calls from debt collectors? It can be terrifying when collectors start pursuing you. However, there are ways to get out of debt without the hassle of debt collectors. Chapter 13 bankruptcy case is the perfect choice in case you have enough money left to pay off your debts after covering your monthly expenses.
However, although Chapter 13 itself is based on having a secure monthly income, there are ways to deal with your debts and bankruptcy even if you have lost your job. And no law indicates that you need to be employed while going through bankruptcy.
Things like changes in the market, pandemics, and unpredictable individual circumstances, such as health problems, are some of the things that can significantly impact your financial situation. Whatever the reason, losing your job or reducing your monthly income is common, and there are ways to keep their impact on your bankruptcy to a minimum.
Most importantly, the bankruptcy system is flexible enough to accommodate unexpected events as we mentioned above. But on the other hand, modifying a monthly plan payment after an income loss isn’t all that easy.
Besides modifying the plan, there are a few other options that you can consider:
- Getting an early Chapter 13 discharge
- Switching to Chapter 7
- Having your bankruptcy case dismissed
What Happens If I Don’t Pay My Chapter 13 Payments?
One missed payment doesn’t have to mean that your case will automatically be dismissed, but this is a sign that you should be more careful with your income. Since every bankruptcy district handles missed payments differently, the most important thing that you need to do is to call your Chapter 13 attorney.
After a few missed payments, your Chapter 13 trustee can file a “Motion to Dismiss for Material Default.”, and if this motion is granted, your case will be dismissed. This also means that you will not get a discharge.
Having your case dismissed is something that you need to avoid at all costs. But thankfully there are multiple ways how to get on top of missed payments.
A dismissal of your bankruptcy case means that you owe your debts as if you did not file for bankruptcy relief. As a result, your creditors can take action to collect the debts, including foreclosures, repossessions, wage garnishments, and debt-collection lawsuits.
Will Debt Collectors Start Pursuing Me Again?
You may be concerned about a Chapter 13 bankruptcy dismissal and wonder whether debt collectors will start chasing after you again. Did you know that you can use a 11 word phrase to stop debt collectors? This can help provide some piece of mind from a debt collection agency pursuing you aggressively.
Are There Ways to Stay in Chapter 13 if I Become Unemployed?
1. Request a Moratorium of Payments
This time is very useful if you can find a job during that time that will help you continue to pay off your repayment plan.
However, the maximum period for a Chapter 13 repayment plan is 60 months. Even if we take this break into an account, the time required to fulfill the repayment plan must not exceed 60 months, and there are no exceptions for this.
On the other hand, most Chapter 13 bankruptcy attorneys base their repayment plans on 57 months. This is a way in which they provide the debtors with extra security, in case they find themselves without a job.
It’s important to talk with your bankruptcy lawyer to understand whether you are eligible for a moratorium.
2. Settle a Motion to Dismiss the Chapter 13 Bankruptcy
Depending on your trustee, there are multiple ways through which you can pay off the missed payments. Certain trustees will set a deadline for you by which you must pay off the missed payments. While others will require you to pay extra money with each payment.
Financially, this is a very difficult situation as it requires you to pay regular payments with the addition of previously unpaid payments. This can last from one month to several months, and this can even leave you without a way to pay for some of your living expenses.
3. Amend the Chapter 13 Bankruptcy Plan
Just like having an increase in your income might require you to raise your monthly payment, there are certain situations in which you can ask your trustee to lower your monthly payment. If you, for example, got fired or you have urgent unexpected expenses, you might have a justified reason for your Chapter 13 repayment plan to be lowered.
Although it is possible to reduce the monthly repayment, this plan must not exceed 60 months, so the possibilities for reducing the repayment are limited. The Chapter 13 trustee may object to the amended plan since not all reasons for a sudden drop in income are justified. After the bank is assured that your activities aren’t fraudulent, the trustee will devise a new plan for future payments.
4. Converting a Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy
If you cannot find a job during the moratorium or if you didn’t have a chance to get one, you still might be able to convert your case to a Chapter 7 bankruptcy case. The cost of Chapter 7 bankruptcy is often much cheaper.
For example, you may be wondering, “how much does it cost to file bankruptcy in texas? Or how much does it cost to file bankruptcy in oklahoma?”
But, as mentioned above, you will need to pass the Chapter 7 Means Test to qualify for a bankruptcy discharge.
A bankruptcy discharge is a court order relieving you from the legal obligation to repay a discharged debt. Your creditors are prohibited from taking action to collect debts that were discharged in bankruptcy.
If you convert your Chapter 13 bankruptcy case to a Chapter 7 bankruptcy case, you could discharge your debts as soon as four to six months after the conversion. However, some unsecured debts may not be eligible for discharge, such as student loans, domestic support arrearage, and most taxes.
Also, if you are behind on your vehicle or mortgage payments, you would need to catch up on those payments or face repossession and foreclosure actions.
Talk With a Chapter 13 Bankruptcy Lawyer About Your Unemployment
If you lose your job during a Chapter 13 case, or you start missing on your payments, make sure to call your bankruptcy attorney as soon as possible. The sooner your situation is resolved, the better, and the more options you will have to improve your situation. If you are still wondering whether bankruptcy is the right option for your situation, take a “When To File Bankruptcy Quiz.” This can help you understand what options are available and which may work best for your situation.
