Options If You Can't Make Your Chapter 13 Plan Payments (2024)

Completing a Chapter 13 repayment plan isn't easy. If you fall behind on your Chapter 13 plan payments, your bankruptcy trustee or a creditor will usually ask the court to dismiss your case for nonpayment. But, if you're struggling to make payments, it's possible to save your bankruptcy and obtain a discharge.

Sometimes, the Chapter 13 trustee or the court will give you time to make up the missed payment. However, if your Chapter 13 payments are too high, modifying your plan to make it more affordable could help. If those options aren't feasible, determining whether you qualify for a hardship discharge or whether converting to Chapter 7 bankruptcy would make sense.

Catch Up on Chapter 13 Payments

Many bankruptcy debtors miss plan payments because of a temporary financial emergency, like an unexpected car repair or medical bill, and most can get caught up if given some time. In many cases, deferring a payment or two might be all the help you need. Your first step would be to speak with the trustee. The trustee might let you catch up over a month or two.

If the trustee won't work with you, you have another option. When you receive the trustee's motion to dismiss your case, you can explain your circ*mstances to the bankruptcy court by filing a written opposition and arguing your side at the motion hearing. You'll request more time to catch up on your plan and explain how you'll be able to do so.

If you make a convincing argument, most courts will allow you more time or add a specific catch-up plan to your Chapter 13 plan to cure your default.

Example. Fred lost a week of income after the city shut down due to hurricane flooding and couldn't make his monthly Chapter 13 payment. Fred contacted the trustee, who agreed that he could catch up by making two payments the following month, plus the additional interest and late fees his lender would charge when the trustee didn't pay his mortgage arrearages promptly. (If Fred didn't pay the extra amount, the late fees and costs would continue accumulating, possibly causing his mortgage to be severely behind at the end of his plan.)

Example. Margo lost her job when she was four years into her plan. She had twelve payments to go, which totaled $3,600. Margo missed three payments before getting a new job, leaving her $3,600 left to pay in her plan, but only nine payments to do it. Because Chapter 13 plans can't last more than 60 months, the court won't give her more time to pay. Also, it's unlikely that the trustee would agree to an informal modification so close to the end of her plan. Margo would likely need to file a motion requesting a modification, and demonstrate to the court that her new job pays enough to raise her payments by $400, the extra amount she would need to pay to complete her plan by the end of her five-year plan period.

Reduce Your Chapter 13 Plan Payments

If you've suffered a permanent income reduction—perhaps you lost your job or received a salary decrease—you could file a motion asking the bankruptcy court to lower or modify your payments. However, bankruptcy courts can't always accommodate your request.

The judge can only reduce the amount you pay toward nonpriority, unsecured creditors, such as credit card balances, medical bills, and personal loans. These are the debts you aren't entitled to pay fully and can discharge at the end of your plan. If your plan pays only debts the judge can't adjust and nothing toward nonpriority, unsecured debts, the court won't be able to reduce your payment.

So, which debt payments can't the bankruptcy judge reduce? The judge won't have any power to adjust priority debt payments, such as a tax debt or support obligation. The judge also can't reduce the amount paid to keep property in Chapter 13.

For instance, you must pay for equity that isn't protected by a bankruptcy exemption (unless the judge allowed you to sell the property and turn over the proceeds to the trustee for creditors). The judge also can't lower past-due house or car loan arrearages unless you let the home, car, or other collateral return to the lender. Learn more about debts you must pay in Chapter 13 bankruptcy.

Example. When Joanna filed for Chapter 13, she owed $60,000 in nonpriority unsecured credit card and medical debt, but nothing more. Her Chapter 13 plan required her to pay creditors her disposable monthly income of $300. If Joanna suffers an income reduction in the future, the bankruptcy judge will be able to lower her monthly payment because the plan pays nonpriority unsecured debt only.

Example: When Paul filed for Chapter 13, he owed $12,000 in income tax and $15,000 in child support, giving him $27,000 in priority debt that he had to pay in his plan. He also owed $50,000 in credit card debt. Paul only had $27,000 in disposable income, so his plan paid $450 monthly to his priority debts for 60 months, leaving nothing to pay toward nonpriority unsecured credit card debt. If Paul later found he couldn't afford $450 per month, he wouldn't be able to reduce the plan payment because his plan doesn't pay nonpriority, unsecured debt—the only debt category a bankruptcy judge can reduce.

Qualify for a Chapter 13 Hardship Discharge

If you can't continue with your Chapter 13 bankruptcy, you might be eligible to receive a hardship discharge even though you haven't completed all of your required plan payments. Before granting a hardship discharge, the court will analyze your financial situation and what's best for your creditors.

However, most filers won't get any debt wiped out through a hardship discharge. The debts that qualify for discharge—nonpriority unsecured debts, such as credit card and medical bills—must have received as much through the Chapter 13 repayment plan as they would had you filed a Chapter 7 case. It's rare for this to happen because trustees pay higher-priority debts first and wait until the end of the plan to pay these creditors.

Also, a hardship discharge won't eliminate priority debts you must pay, such as certain taxes or domestic support obligations. You will still owe those priority debts after the bankruptcy case is closed. Learn about getting a Chapter 13 hardship discharge.

Convert From Chapter 13 to Chapter 7

If you can't make or modify your monthly payment, and if you won't get any benefit from a hardship discharge, you might want to consider converting to Chapter 7 bankruptcy. Converting to Chapter 7 differs from a hardship discharge in several ways.

The primary benefit is that the bankruptcy court will wipe out your qualifying debt within a few months of the conversion. Also, you won't need to make payments to receive the discharge.

However, another aspect can be challenging to accept—especially if you filed for Chapter 13 to prevent losing property, like your home. The Chapter 7 bankruptcy trustee will sell your nonexempt property—property not protected by a bankruptcy exemption—for the benefit of your creditors.

You must qualify for a Chapter 7 discharge, which means you must pass the Chapter 7 means test and can't have received a Chapter 7 discharge in the previous eight years. Also, you'll still owe your priority debts and any unpaid secured debt arrears, such as late mortgage payments.

Learn more about converting a bankruptcy case from Chapter 13 to Chapter 7.

Let the Court Dismiss Your Chapter 13 Bankruptcy

If none of the options above allow you to meet your goals, you can always let the court dismiss your case. Although it would be unlikely that you would qualify for Chapter 13 again immediately, you might when your finances change.

Once the court dismisses your case, the Chapter 13 plan will no longer be in place, and your creditors can begin collecting. You'll be responsible for unpaid debts plus interest going back to the initial filing date, although you'll get credit for payments received during bankruptcy.

Also, the automatic stay—the order that prevents creditors from collecting—isn't always put in place when you file successive bankruptcy cases. Depending on when you file, you might have to ask the court to extend the automatic stay in your matter.