Bills Logo

Handling A Drop In Income During Chapter 13

Mark Cappel
UpdatedFeb 26, 2024
Key Takeaways:
  • In a Chapter 13, most assets are protected from creditors.
  • Chapter 7 allows debtors to discharge most unsecured debts completely.

What if one experiences job loss during a Chapter 13 filing and cannot make payments as outlined in the plan?

Since the initial plan is based on one's income, what if one experiences job loss during a Chapter 13 filing and cannot pay the bankruptcy payments as outlined in the plan?

Because the financial circumstances under which you filed your original Chapter 13 petition have changed significantly since you filed the petition (i.e., you lost your job, and presumably your primary source of income), you may be able to modify your petition, or have it dismissed altogether, allowing you to file a new case with lower payments to the change in your financial situation. If your income reduction is sufficient for you to qualify to file Chapter 7 bankruptcy, you may be able to convert your current Chapter 13 to a Chapter 7. Unlike a Chapter 13 bankruptcy, in which you make monthly payments to the court, which then distributes money to your creditors, a Chapter 7 allows debtors to completely discharge most unsecured debts, such as credit cards, personal loans, and automobile deficiency balances.

Which option is the best choice for you will greatly depend on the terms of your current bankruptcy case and your income and assets after your job loss. If you still have significant assets, such as a large amount of home equity, a Chapter 7 conversion may not be a viable option, as your assets may exceed your state bankruptcy property exemptions. Under a Chapter 7 plan, assets that exceed the value set by your state (or by federal law in some cases) would likely be sold by the court to repay your creditors. However, in a Chapter 13, most assets are protected from creditors.

As you can see from the information above, there are many factors that must be taken into consideration when deciding how to best address your reduction in income in relation to your bankruptcy case. You should consult with your bankruptcy attorney as soon as possible to discuss the change in your material circumstances and what options are available to you to resolve your financial difficulties. Only your attorney can tell you what action you should take in regard to your current bankruptcy case, so please consult with him or her at your earliest convenience.

To read more about bankruptcy, and the different types of bankruptcy available to consumers, I encourage you to visit the Bankruptcy Information page. I wish you the best of luck in resolving you financial difficulties, and hope that the information I have provided helps you Find. Learn. Save.



VIDEO: Bankruptcy - What is Bankruptcy?

Did you know?

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.

A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.

Each state has its rate of delinquency and share of debts in collections. For example, in Arizona credit card delinquency rate was 3%, and the median credit card debt was $441.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.