Chapter 13 bankruptcy may allow you to pay back your debts at a discounted rate. These plans are beneficial if you do not meet the asset requirements for a Chapter 7 bankruptcy or have property you want to keep.
However, unforeseen life changes can make it challenging to keep up with your repayment plans. When this happens, how should you proceed?
Convert your Chapter 13 to a Chapter 7 bankruptcy
Life changes such as job loss or income reduction may make you eligible for Chapter 7 when you might not have been previously. To convert your bankruptcy, you must go through the following steps:
- File Chapter 7 bankruptcy documents with the courts
- Pass the means test for income and assets
- Attend another trustee or creditors meeting
- Take a Debtor’s Education class
While you might not get to keep all of your property, conversion may eliminate your debt.
Seek a hardship discharge of your Chapter 13 bankruptcy
The courts might recognize some situations as extreme hardships that make it impossible for you to pay back your Chapter 13 plan. If you become severely ill or injured and cannot work, you can request a hardship discharge.
To qualify, you must prove that payment modification will not work, your creditors have received as much money as if you had filed a Chapter 7 bankruptcy, and the reason for not paying is of no fault of your own. Debts that are not discharged in a Chapter 7 bankruptcy do not qualify for a hardship discharge.
If you cannot afford the payments on a Chapter 13 debt reorganization plan, know that various options are available.