Chapter 13 Debtors May Have Options When Plan Payments No Longer Feasible

During the pendency of a Chapter 13 bankruptcy, debtors may find that due to circumstances beyond their control, they are no longer able to make the requisite plan payments to the trustee. If plan payments are not made as required, the debtor will find himself the subject of a Motion to Dismiss for Failure to Make Plan Payments. If granted, the debtor’s case will be dismissed, and all debts in the bankruptcy will, once again, become due and payable.

To avoid this unfortunate outcome, there are a number of mechanisms the debtor’s attorney can employ. One such tact is modification of the debtor’s plan. A modification can either waive or cure any arrears owed on his plan payments, thereby placing the debtor back in current status with the trustee. Modification can also, in some cases, reduce or extend the monthly payments, thereby enabling the debtor to proceed to the end of his plan and obtain a discharge.

If modification is not feasible, the debtor may be able to petition the court for a hardship discharge, provided he can show the court that the failure to complete the plan is “due to circumstances for which the debtor should not justly be held accountable.” The court must also be shown the plan modification is infeasible and that the total of any payments to unsecured creditors under the plan were not less than what they would have received in a Chapter 7 proceeding.

Finally, the debtor could consider converting his case to a Chapter 7 bankruptcy. In a Chapter 7 case, the debtor’s non-exempt assets, if any, will be liquidated in order to pay unsecured creditors, and the remaining dischargeable debt will be eliminated at the conclusion of the case.