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Chapter 13 modifications: Take stock of your options carefully

What happens when you can't continue making the payments for your Chapter 13 bankruptcy?

You essentially have two choices if you want to continue to stay within the protection of the bankruptcy court: Convert to a Chapter 7 bankruptcy or ask the court to modify your Chapter 13 plan and lower your monthly payment.

In order to modify your existing plan, you generally have to show the court that there's been a change in your circumstances since you last contacted the court that is affecting you financially. For example, things like losing your job, having a new baby or having a family member with a severe illness could all be things that make it impossible to keep up with your plan.

You then have to decide exactly how you want to modify the plan. One option is to ask the court to simply lower your payments. Before you do that, take a careful look at what exactly is being paid through your plan, at what rate, in order to determine if your request is even possible.

If you're paying more than the bare minimum (1 percent) back on any unsecured credit card debt or person loans, you probably have some leeway to lower the amount. On the other hand, if your loan consists of mostly mortgage and car payment arrears, you may not be able to reduce your payment without putting your home or car at risk of foreclosure.

Another option is to ask the court to extend your Chapter 13 to give you more time to pay it off. If you were set to pay off everything in three years, the court may be willing to give you five years to repay instead.

If you don't have any wiggle room to simply lower your payments and you can't extend them, you may have to consider converting to a Chapter 7 bankruptcy instead. While that may mean giving up some of the property you had hoped to keep, it could be your only option if you can't make the payments anyhow.

Knowing what to do when you're faced with a financial crisis that just seems to be compounded is difficult without advice. Consider talking to an attorney about the problems you're facing in order to get detailed answers that are tailored to your situation.

Source: Bankrate, "4 limit on modifying bankruptcy," accessed March 10, 2017

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