Chapter 13 bankruptcy is a multi-year process. After the filer submits initial paperwork to the courts, they must negotiate terms for a court-approved repayment plan. They must then make between 36 and 60 monthly payments over the course of three to five years to reduce their debt.
Provided that their financial circumstances remain the same, filers can typically fulfill their repayment plan obligations and qualify for a discharge at the end of the bankruptcy process. However, if their financial circumstances change, continuing to make payments may prove prohibitively difficult.
What happens if a filer in the middle of a Chapter 13 repayment plan suddenly loses their job?
There are two possible solutions available
Losing a job during bankruptcy can make continued compliance with a repayment plan prohibitively difficult. Thankfully, filers have two options for protecting themselves and continuing the bankruptcy process.
In many cases, it is possible to modify a repayment plan. Submitting paperwork to the courts notifying the trustee of a material change in circumstances can lead to an adjustment of the repayment plan to make it sustainable, given the current income of the filer.
In cases where a filer loses their job and cannot secure new employment for many months, they may be able to convert the case to a Chapter 7 bankruptcy. They may then be eligible for a more rapid discharge.
Working with a Chapter 13 bankruptcy attorney can make it easier for filers to understand their rights and avoid common pitfalls during their bankruptcy cases. The right response to financial setbacks during a repayment plan can help people move forward with a bankruptcy even when their circumstances change.