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What happens if you can't afford your Chapter 13 payment plan?

A Chapter 13 bankruptcy is a carefully laid financial plan that's designed to let you pay off all or most of your debts within a specific time period--usually somewhere between 36 and 60 months.

But even the best laid plans can fall apart when something happens that changes your entire financial situation.

For example, a sudden illness might strike someone in the household, leaving you with mounting medical bills and maybe a lost source of income if the sick person happens to be one of the household wage-earners. The company you work for could go out of business. The renter you've had for 10 years could move, leaving you with a vacancy and a lost source of income. Whatever the reason, you may suddenly find that you can't keep your Chapter 13 payment schedule.

What sort of options do you have at this point?

First, contact the trustee overseeing your case and let him or her know why you are unable to make the payments. Be proactive. That will at least show the trustee that you are conscious of the problem and not willfully disobeying the court.

Next, discuss which options you have available to you with your attorney, based on your current financial situation and your past history. You may have several choices:

-- You may be able to modify your existing Chapter 13 plan and get a lower payment if there's still sufficient funds to make the plan feasible.

-- You may be able to qualify for a hardship discharge. If there's no way to save the Chapter 13 bankruptcy, the situation isn't your fault, and your creditors have already received at least as much as they would have gotten under a Chapter 7 bankruptcy, the trustee may discharge your case.

-- You may be able to convert your case to a Chapter 7 bankruptcy instead. If you didn't pass the means test before, you may now. However, you may also have to give up some assets you were able to keep under Chapter 13.

The important thing to remember is that there's no reason to panic as long as you deal with the situation right away.

An attorney can provide more advice on how to handle the situation when you suddenly can't afford your Chapter 13 bankruptcy payments.

Source:, "Chapter 13 Trustee Eastern District of Wisconsin," accessed Feb. 16, 2017

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