What Happends If I Can’t Make All Chapter 13 Plan Payments in New York?

In prior posts we have covered how a wage earner repayment plan (chapter 13 bankruptcy) works. Many people are interested in filing chapter 13 bankruptcy in Manhattan, Brooklyn or Queens, but are concerned about what happens if they are unable to make all plan payments, or if they decide they don’t want to continue to be locked into a long repayment plan, In this post we will look at the options available to a chapter 13 debtor who is unable to make all plan payments, such as because he or she lost his/her job, or because expenses were higher than planned.

1. Conversion to Chapter 7. A debtor in a chapter 13 case has the right to automatically convert the case to chapter 7 at any time. This is done by filing a Request for Conversion form with the Clerk’s Office. Once the case has been converted to chapter 7 the debtor no longer has to continue making chapter 13 plan payments. The debtor can obtain a discharge of his/her dischargeable debt in the chapter 7. An example of a situation in which someone might do this is if they had filed chapter 13 for a very specific reason, such as to try to catch up on car loan payments or home mortgage payments to prevent loss of the car or foreclosure, but they weren’t able to successfully make the required catch up payments and lost the car or house. In that situation it may not make sense to continue to be in chapter 13 and conversion to chapter 7 may make more sense.

2. Voluntary Dismissal. A debtor in a chapter 13 case has the right to voluntarily dismiss his or her case at any time. Individuals who file chapter 13 to try to catch up with payments on a car loan, home mortgage or apartment lease often will seek to dismiss their cases once they have caught up with payments. Some individuals decide they no longer want to be in chapter 13 repayment plan. By voluntarily dismissing a chapter 13 case the debtor is no longer bound by the chapter 13 plan and no longer required to make monthly plan payments Of course, a debtor who dismisses a chapter 13 before making all payments required under the plan will not receive a discharge.

3. Amend Chapter 13 Plan. Another option for a debtor who is unable to make chapter 13 plan payments is to amend the chapter 13 plan to adjust the payment schedule to either reduce the monthly plan payments or extend the length of a plan (not longer than 5 years total from time of 1st payment). In some situations a debtor may need to adjust the monthly play payments to reflect changes in income, such as reduced wages resulting from reduced working hours. In those situations the debtor can apply to the bankruptcy court to amend the chapter 13 plan to reflect his/her decreased income by reducing the monthly plan payments. Amendment of a chapter 13 plan requires a motion to amend the plan brought on notice to the chapter 13 trustee and all creditors.

Please feel free to contact Starr & Starr, PLLC at 888-867-8165 or by e-mail at info@starrandstarr.com to schedule a consultation regarding chapter 13 bankruptcy.