If My Income Changes Can I Modify or Change My Chapter 13 Bankruptcy Plan?

By Kitty J. Lin, Attorney at Law

One of the biggest fears that people have when filing for a Chapter 13 bankruptcy case is that they will be permanently stuck in the plan for the duration of the Chapter 13 case.  Chapter 13 bankruptcy cases last between three to five years.  You are required to pay all of your disposable income into the Chapter 13 plan of reorganization.  The Chapter 13 trustee disburses the funds in the plan to your creditors as provided for in your Chapter 13 plan. The good news is that the plan or reorganization can be flexible for the most part.  The plan can be modified if your circumstances change.

Loss or Decrease in Income

The economy can be fickle at times.  A lot can happen between three to five years.  If you lose your job or have your hours decreased it can severely impact your finances.  If you are currently in a Chapter 13 bankruptcy case and have already committed all your disposable income to the Chapter 13 plan you can modify your plan to decrease your plan payments to reflect your current financial situation.  Your bankruptcy lawyer will need to file a motion to modify the approved plan for court approval.  One example: your hours were cut and your monthly income decreased by $200.  You can request modification of your plan to decrease your monthly Chapter 13 plan payments by $200.  If you were laid off or fired and now have no income to support your Chapter 13 plan, one option would be to convert your Chapter 13 bankruptcy case to a Chapter 7 bankruptcy case if you qualify to be a debtor under Chapter 7.  Your ability to modify the bankruptcy plan or to convert to a Chapter 7 would depend on your circumstances.  You will need to consult your bankruptcy lawyer regarding your specific circumstances.  If you are stripping your second mortgage in a Chapter 13 and you convert to a Chapter 7, your second mortgage may no longer be stripped and the lien may still be recorded against your property as the lien strip was dependent on the successful completion of your Chapter 13 plan.

Can I Pay Off My Plan Early?

This is a question that is asked a lot.  The answer is: it depends.  If you have the funds to pay off 100% of your creditors after the filing of your bankruptcy case then you can pay off your plan at any time.  You would need to file a motion with the court to obtain approval to do so.  If you do not have the funds to pay off 100% of your creditors then the answer is more complicated.  You are expected to remain in a Chapter 13 plan for at least three to five years depending on your circumstances at the time you filed your case.  The ability to pay off your plan early depends on the jurisdiction where you have filed your bankruptcy case and the how the trustee’s office chooses to administer the cases.

If you need to modify your Chapter 13 bankruptcy plan it is advisable to seek the advice of an experienced bankruptcy attorney to help you through the process.