If we’ve said it once, we’ve said it a thousand times. Chapter 13 bankruptcy is a powerful tool that can help families and individuals get their debt under control. It allows the bankruptcy filer, or “debtor,” to stop a foreclosure, restructure secured loans (car loans, home equity lines of credit, etc.), pay pennies on the dollar for certain kinds of debt, and pay back arrears on secured debts like mortgages and car loans over the course of three to five years. And that is just the tip of the iceberg. But a lot can happen over the course of a Chapter 13 payment plan that may affect the debtor’s ability to keep up with their payments, such as…
- A loss of income – either a permanent pay cut or losing one’s current job and having to take a lower paying job.
- Suffering a serious long-term or permanent injury that affects one’s ability to work.
- For self-employed debtors, losing key customers or incurring unexpected business expenses.
- Having to pay health insurance premiums previously covered by an employer.
When circumstances change, we often hear the same question, “Can you get your chapter 13 payments lowered?” We will address this question and more throughout the course of this article.
Can You Get Your Chapter 13 Payments Lowered?
The short answer is yes. If you are dealing with a long-term change, but still have “disposable income” available (money left over after deducting reasonable, necessary expenses), you can ask the court to modify your Chapter 13 plan and lower your monthly payments on a permanent basis. However, it is far from a sure thing. When the debtor’s circumstances change, it is possible for them to modify the Chapter 13 bankruptcy payment plan with the Court’s approval. Following a motion to modify the plan, the court and Chapter 13 trustee will typically request proof of your new circumstances and, if satisfied, they can order a new plan payment for the duration of the case. You also must give notice of the motion to creditors, and other parties in interest – and they have the right to object to the motion. If either the Chapter 13 trustee or one of the creditors objects to the new plan, each party will have the opportunity to voice their position at a hearing.
As the moving party, the burden of proof falls on the debtor. They must demonstrate to the bankruptcy court why their motion should be granted. Bankruptcy law requires essentially the same factors to modify a plan as it does to confirm the original Chapter 13 plan.
- Full payment of all priority debt.
- Pay arrearages and other defaults under the original plan.
- Meet the “best interests of creditors” test, which requires debtors to pay holders of general unsecured claims at least as much as they would receive in a Chapter 7 liquidation.
- The plan must be feasible. The debtor must show that they can make the new, lower monthly payments.
Other Options to Decrease Your Monthly Chapter 13 Payments
When a modification is not approved by the court, the debtor still has a few options to lower their monthly payments.
- While the debtor may initially be hesitant to sell off collateral, such as their home or vehicle, they may later change their mind if they can no longer keep up with their auto loan and/or mortgage and the arrearage payments. Selling off such collateral is a quick way to lower one’s monthly financial obligations.
- If the debtor is in a plan that is less than 5 years, they may be able to extend the length of the payment plan to the full 5 years. While this does not lower the total amount due over the course of the Chapter 13 plan, it can help by lowering the debtor’s monthly payments by stretching that debt over a longer period of time.
- The debtor can consider converting to a Chapter 7 bankruptcy. However, if the debtor owns real property or a vehicle that has equity, the Chapter 7 trustee may wish to sell those and distribute the proceeds to creditors. This is not always the case, as many times property either has no value to the Bankruptcy Estate, or the property can be exempted.
- The debtor can request a hardship discharge, which discharges unsecured non-priority debts. However, this is a rare occurrence.
- Finally, the debtor can request to voluntarily dismiss their Chapter 13 case.
Consult an Experienced Bankruptcy Attorney
If you have questions about Chapter 13 bankruptcy or want to see if you might qualify to have your Chapter 13 payment plan modified, please schedule a risk free consultation or contact Steiner Law Group, LLC at (410) 670-7060. Steiner Law Group is a boutique law firm that assists Maryland citizens with bankruptcy and financial restructuring services. We have helped hundreds of individuals, families and businesses discharge millions in debt.