Filing for Chapter 13 bankruptcy can provide you with many advantages over a Chapter 7 bankruptcy. Repaying your debts through a Chapter 13 plan can eliminate your debt, while protecting your credit and assets more so than in a Chapter 7 case. However, not everyone gets to benefit from repaying their debts through Chapter 13 plan.
There are cases in which change needs to be made after the bankruptcy petition has been filed. For example, if you were unable to satisfy the original Chapter 13 plan, your case may be handled one of four ways.
Modification of the Plan
When seeking bankruptcy protection, the court will always prefer to find a solution that allows the debts to be repaid. If you cannot afford to repay the debts as originally outlined in your Chapter 13 plan, a plan modification may be approved by the court. Modifications to the plan may include changes to the amount of time allotted for debt repayment or how much is required to be repaid. In other words, the court may grant you more than the 3-5 year standard time frame or agree to settle for less than is actually owed. The court may also reduce the monthly payment requirement of the Chapter 13 plan in order to increase the likelihood of you repaying the debt in full over time.
Conversion to Chapter 7
If you can no longer make your payments as originally outlined in the plan, and there were no modifications that would improve your ability to repay the debts, the court may agree to convert your case into a Chapter 7 case. It is not uncommon for the court to require that some of your assets be liquidated in order to satisfy the debt owed. However, many of your assets are exempt from liquidation under bankruptcy exemption laws. These laws vary by state, but usually protect your home from foreclosure during a liquidation proceeding. In order to have your case converted into a Chapter 7 case, you must be able to prove that you can no longer afford to make the payments as outlined in the original Chapter 13 plan.
Hardship Discharge
If you experience an extreme financial hardship, the bankruptcy court may grant a hardship discharge of your case. A hardship discharge is reserved for unavoidable financial hardships that cannot be predicted or controlled by you. Common examples are if you can no longer able to repay your debts through the Chapter 13 plan due to an accident, illness or injury that prevents you from working or obtaining the income necessary for debt repayment.
Dismissal
Your Chapter 13 case may be dismissed by the court either (a) voluntarily, as requested by you or (b) involuntarily, as ordered by the court. You may request to have your case dismissed if you feel you can repay the debts outside of bankruptcy. Your case may be dismissed by the court of the you fail to provide accurate information in the petition, fail to complete the bankruptcy filing process or commit an act of fraud.
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