In a chapter 13, you agree to make a plan payment over the next 3 and 5 years. The amount you pay is based on your disposable income and the types of debts you have. Most of the time you are not paying your creditors in full. If you make all your required plan payments for the duration of the plan, the remaining balances are wiped out after bankruptcy. The repayment plan assumes that you will be receiving the same income throughout the life of the plan. However, it is common for people to suffer job loss or have and medical issues that may prevent them from being employed during part of the chapter 13. Today’s post will discuss common options available to deal with job loss and a new job when in chapter 13.
File a motion to abate-suspend plan payments
Generally, if the job loss will be temporary and you just need time to find new employment or recover from an illness, a motion to abate payments will take care of the issue. Your attorney can file this motion with the court asking them to suspend your payments for several months while you find new employment. In Kansas it is not uncommon to have up to 3 months of missed payments during an abatement. The missed payments are usually included at the end of the case to make up any shortfall on the dollar amount required to complete your plan. In some cases the missed payments are spread out over the remainder of the case and this cans cause the payments to increase.
Decrease plan payments through modification
If you end up with a job that pays less than what you stated in your original petition, you may be able to lower your payment amount. Your attorney will make a new budget with you and determine if you can lower payments and the new amount. If your plan only provided for repayment of secured and priority debts such as child support or taxes, then you will most likely not be able to lower your plan payments.
Convert to chapter 7
If job loss or medical issues leaves somebody with no income for an extended period of time, then converting to a chapter 7 may be an option. Speak with your attorney about the possibility of converting, if you qualify, and how it will affect your property. Every case is different and must be examined to determine whether this option. In some cases you are better off allowing the case to be dismissed rather than converting.
If your case is dismissed for nonpayment due to job loss and you are able to get back to work quickly after it is dismissed you might be able to have the case reinstated. In Kansas this requires a good faith payment to be made at the time the motion to reinstate is filed. In most cases if this is done quickly after the dismissal and can keep the case active.
Another option is to refile the case either as a new chapter 13 or a new chapter 7. This is not always an option but your attorney can help you determine if reinstatement or refiling is a better option. If there is new debt, such as new medical bills, refiling might be preferable to reinstatement.
You may have several options if you have a job loss or interruption in income during a Chapter 13 case. Please don’t assume the case will automatically be dismissed if you are unable to make the payments during one of these periods.
If you have any questions about bankruptcy please contact us and one of our bankruptcy attorneys will be happy to go over things with you. We have consumer bankruptcy offices in Wichita, Topeka, Lawrence, and Overland Park and we are happy to give free consultations.