Chapter 13 Debt Payment Issues?

Can’t Make Your Chapter 13 Debt Payment? Now What?

When your Chapter 13 bankruptcy case is confirmed by the Court, you enter into a debt repayment plan. The payment plan is carefully created considering your specific financial situation. It is created with the intent to pay your creditors back, while at the same time not creating an undue hardship on you. In theory that is a great concept, however, the payment terms are typically three to five years, and any number of circumstances can occur in that time period. Maybe you had a child, lost your job, develop an illness or are going through a divorce. What happens if you can no longer make your Chapter 13 Debt Payment?

First off, don’t feel alone. This happens frequently and the courts have a number of options you can explore. The first step would be to contact your bankruptcy attorney, explain your situation and remain calm as you collectively decide which option would be best.

Submit a Petition to Bankruptcy Court

If you feel you can’t make your Chapter 13 Debt payment only temporarily, you can petition the court for a suspension. This is similar to requesting a forbearance on your student loan. Your bankruptcy lawyer will petition the court to suspend your repayment plan for a certain amount of time. This is usually one to two months.

Once the petition is filed with the court, both the court and the trustee will have to agree to the terms. If granted, you will ultimately be required to make up for the missed payments by paying a slightly larger amount in the remaining repayment months. It is important to note, that the court normally only grants suspensions on five year repayment plans.

After reviewing your situation, your bankruptcy lawyer may feel that a month or two suspension will not accommodate your situation. In that case, you might want to explore a Chapter 13 debt modification.

Chapter 13 Debt Modification

The process for requesting a debt modification is similar to that of the suspension; you will begin by petitioning the court for new payment terms. The court will require you to show good cause for the new repayment terms and you will need to explicitly show what facts necessitate the need for the new repayment terms. During this process you will also be required to submit a new budget and the court will have to thoroughly review and approve it.

In rare circumstances neither a suspension nor a modification will meet your needs. In that case you may need to explore converting your bankruptcy to a Chapter 7 bankruptcy.

Convert to Chapter 7 Bankruptcy

If you feel your financial situation will still not allow you to make your Chapter 13 Debt Repayment with a modification, and you do not foresee your situation changing for the better, Chapter 7 could be the way to go.

Your bankruptcy attorney will need to petition the court to convert your bankruptcy to a Chapter 7 and will need to provide evidence of why you qualify for the conversion. If the court finds that you meet the circumstances, your case will be converted to a Chapter 7 bankruptcy and your unsecured debts will be discharged.

Bankruptcy is always full of options and its best to explore all of the options with the guidance of a highly qualified bankruptcy attorney.

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Chapter 7 Bankruptcy – Debt Discharge

Discharge Debt In Chapter 7 Bankruptcy

If you have already filed Chapter 7 bankruptcy, you are probably looking forward to the Chapter 7 debt discharge. To discharge debt in Chapter 7 Bankruptcy, 60 – 90 days will need to pass after your 341a meeting of creditors.

discharge debt in chapter 7 bankruptcy

If you think about it this is quite early in the bankruptcy process, which is good news for bankruptcy filers. To better understand how to discharge debt in chapter 7 bankruptcy, we will discuss what the discharge is, what can be discharged and the exceptions to the discharge rule.

First, let’s discuss what the debt discharge is. Basically the debt discharge will release the debtor from all liability of the debt that has been discharged. Upon discharge the creditor will not be allowed to collect on the debt or take part in any collection activities.

In a Chapter 7 bankruptcy most debts will be discharged, however, there are always a few exceptions to the rule. All debts that are not discharged remain active and the debtor will maintain liability for them until they are repaid.

Non Dischargeable Debts

  • Taxes
  • Spousal or child support
  • Criminal restitution orders
  • Student loans
  • Debt incurred as a result of personal injury caused by the debtor

Secured Debt

If you have any secured debt that you wish to keep after your bankruptcy, you will need to reaffirm that debt. What is secured debt? Secured debt is tied to personal property such as your car or your home.

If you choose not to reaffirm the secured debt, the creditor can repossess or foreclosure on the property to collect on the unpaid amount owed. If you choose to reaffirm the debt, you will sign an agreement with your creditor that you will continue to remain liable for the debt and set up a payment plan for that debt. You will be required to reaffirm the debt prior to the discharge being entered and you will be required to submit a written reaffirmation agreement.

Your bankruptcy attorney can assist you with the reaffirmation agreement and provide guidance on this process and the required disclosures. Your bankruptcy attorney is required to certify that they have counseled you on the consequences of reaffirming your debt and verifying that the reaffirmation will not create an undue hardship on the debtor.

Revocation

There are also rare occurrences when a debt discharge can be revoked. This can occur as a result of a request by the trustee or a creditor. If the creditor or the trustee feels the debtor received the discharge fraudulently by misstating the evidence, failed to comply with a bankruptcy audit, failed to surrender property to the bankruptcy estate or did not follow the court’s orders, they can petition the bankruptcy court to revoke the discharge.

The creditor or trustee must make a petition within one year of the discharge. If the court agrees with the trustee or creditor and revokes the discharge you will remain liable for the debt and you will also be assessed a penalty by the bankruptcy court. In some instances debtor can also be criminally prosecuted if they are found to have committed an egregious fraud.

Speak with a qualified bankruptcy attorney today for more information on how to discharge debt in chapter 7 bankruptcy.

 

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