What Happens if My Income Decreased During Chapter 13 Bankruptcy?

Chapter 13 is a chapter of the bankruptcy code that individuals and spouses file under when they want to keep some of their assets. Filing for bankruptcy is a serious decision, but it can be beneficial to both debtors and creditors when done correctly. After all, the goal is to have creditors get paid and have debtors leave with a fresh start. Debtors rely on their income to pay debtors on time during bankruptcy proceedings. Accordingly, and understandably so, debtors can become worried and nervous if their income suddenly gets lower while they are still going through bankruptcy.

If your income decreases when you are going through Chapter 13 bankruptcy, there are a couple of options available to you. If you want your repayment plan modified, you can submit a form to the court and have it approved. Alternatively, there are emergency measures that can be taken if you experience extreme financial hardship, like putting payments on hold or even canceling them entirely. You also may be able to switch to Chapter 7, bankruptcy instead of Chapter 13 if it is beneficial to you.

To get a free analysis of your situation with our Pennsylvania bankruptcy lawyers, call Young, Marr, Mallis & Associates at (215) 701-6519.

What is Chapter 13 Bankruptcy?

Chapter 13 is a chapter of the bankruptcy code geared towards individuals and couples with a steady stream of income. Chapter 13 is also sometimes called a “wage earner’s plan.” Debtors, with the help of legal counsel, create a plan to pay off their debtors over a period of years.

What Do I Do if My Income Goes Down During Chapter 13 Bankruptcy?

Because Chapter 13 bankruptcy happens over a period of usually three to five years, it is not uncommon for people’s level of income to change during that time. For that reason, individuals who, say, have their pay cut during this time can be put under great stress, especially if they can no longer make their payments.

Chapter 13 Bankruptcy Repayment Plans

A very important part of Chapter 13 bankruptcy is your repayment plan. You submit this plan with the help of our bankruptcy lawyers. The court, creditors, and other parties will carefully examine and hopefully approve this plan. The intervals at which payments are due and how they are paid are detailed in this plan.

Your repayment plan is This plan serves as the basis for the entire process, so changing it in any way is a big deal. However, that does not mean that the repayment plan is set in stone.

Modifying Repayment Plans

Since your Chapter 13 repayment plan is court-approved, the way to get a modification to your plan is also through the court. To have a Chapter 13 repayment plan modified, you have to submit a “modification motion” to the court and send the same proposed modification to any bankruptcy trustees and creditors. There will then be a hearing on whether your proposed modification is approved or not.

What Cannot Be Changed in Chapter 13 Bankruptcy?

There are, however, some kinds of debts that cannot have their payment lowered in Chapter 13 bankruptcy. While judges have great latitude in how they rule things, there are some items that are beyond their control.

Debts that Must Be Repaid

The judge cannot make you exempt from certain debts in order to better pay off creditors. Things like child support, alimony, federal and state taxes, and paying employees cannot be halted because you are having difficulty paying your creditors through your plan.

Paying to Keep Nonexempt Property

One of the key features of Chapter 13 is that you can mark certain assets as exempt from liquidation. Those assets are called “exempt property.” Nonexempt property, on the other hand, can still be liquidated. However, sometimes nonexempt property is not immediately liquidated because keeping it is seen as beneficial to creditors. However, if you are having difficulty making payments under your plan, creditors may choose to have that nonexempt property liquidated.

What to Do If You Cannot Modify Your Repayment Plan

There are avenues open to you if you cannot change your payment plan in Chapter 13 Bankruptcy. Some of these options may only slightly change how proceedings happen, while others are quite drastic. Before considering any of these options, it is very important that you speak with our Bucks County bankruptcy lawyers before pursuing these options.

Suspend Payment Obligations

One thing you can do is ask the court to suspend your payment obligations to creditors until you have sufficient income again. Naturally, creditors are not going to like it if you ask to do this, so they may try to take any nonexempt assets at this point.

While this option, if approved, can provide immediate relief, it may make you look bad during proceedings, which could have adverse effects. Consult with an attorney before choosing to do this.

Early Discharge

You can also request that bankruptcy proceedings end prematurely because of your financial situation. Generally, this will only be used as a last-ditch desperation move since ending bankruptcy results in any unpaid creditors being left high and dry. For example, an early discharge may happen if you are paying creditors from what you earn on your business, but your store and all of its inventory are destroyed in a flash flood. You may also be able to get an early discharge for less severe reasons, like losing your job in a layoff, although that is less likely.

Speak to Our Bankruptcy Lawyers Today

If you have concerns about your situation under Chapter 13 or any other chapter of the bankruptcy code, call our Philadelphia bankruptcy lawyers with Young, Marr, Mallis & Associates at (215) 701-6519.