Your Options If You Can’t Complete Your Chapter 13 Repayment Plan In Los Angeles

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I’m considering filing for Chapter 13 protection. What happens if things change while my case is pending? Do I have any options? Yes. The discussion below discusses the options you have available to deal with a change in circumstances while you are in your Chapter 13.

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If you are already in a Chapter 13, please contact your current counsel if you are facing postpetition problems. We no longer do repair work.

What Happens If I Lose My Job While In Chapter 13 Bankruptcy In Los Angeles?

If you lose your job during a Chapter 13 bankruptcy, there are several possible paths forward, depending on your specific situation. Common ones include:

Seeking Temporary Assistance

If a family member or other source of support, such as a close friend, is able to help you cover plan payments while you’re between jobs, that might allow you to stay on track.

Temporary Suspension Of Your Chapter 13 Plan Payments.

If you’ve already secured a new job or expect to within a few weeks or months, you may be able to request a temporary suspension of your plan payments.

Converting To Chapter 7

If your financial situation has dramatically changed, you might now qualify to convert your case to Chapter 7 bankruptcy. This comes with costs and benefits, including the potential loss of non-exempt assets.

Hardship Discharge

In limited circumstances, you can apply for a hardship discharge under Chapter 13, even if you haven’t completed all plan payments. You would need to meet certain legal criteria to do so, however.

Dismissal

If no viable option is available, your case may be dismissed, but this is generally the least favorable outcome.

Importantly, throughout your Chapter 13, your plan must meet Chapter 7 liquidation requirements, meaning your unsecured creditors must receive at least as much as they would if your case were Chapter 7. That requirement remains in effect even if your circumstances change.

Can I Temporarily Pause My Chapter 13 Payments Due To Financial Hardship In Los Angeles?

Yes, if you’re facing a temporary hardship, whether due to something like a surgery, short-term disability, or sudden income loss, you can indeed file a motion to temporarily suspend plan payments. However, any suspension must still comply with the Chapter 7 liquidation requirement.

This means that if your plan already satisfies this requirement and you have no non-exempt assets, pausing payments may be quite simple. On the other hand, if your plan is structured to just meet the Chapter 7 liquidation requirement, suspending payments will likely mean increasing them later to make up the difference.

Before requesting a pause, your attorney will conduct an analysis to ensure the plan remains compliant with bankruptcy law once payments resume.

What Is A Hardship Discharge In Chapter 13 Bankruptcy? Do I Qualify For It?

A hardship discharge allows you to receive a Chapter 13 discharge even if you haven’t completed your plan. This is only available under specific, limited conditions. The statutory requirements are:

• Your Plan Must Be Confirmed: You cannot receive a hardship discharge unless your repayment plan has already been confirmed by the court.
• The Circumstances Must Be Beyond Your Control: The reason you can’t continue your plan must not be your fault. For example, losing your due to downsizing may qualify, but quitting your job voluntarily likely won’t.
• You Must Have Already Met the Chapter 7 Liquidation Requirement: Creditors must have received at least what they would have if you had filed Chapter 7.
• Modification Is Not Practicable: It must be impossible to adjust your plan in a way that allows you to continue.

If all conditions are met, your attorney can file a motion for hardship discharge.

Will My Chapter 13 Bankruptcy Be Dismissed If I Stop Making Payments In Los Angeles?

If you miss payments, the Chapter 13 trustee can file a motion to dismiss your case due to a material breach of the plan. However, you may have options, such as curing the default. In this case, if you act quickly and have a cooperative trustee, you might be able to catch up on missed payments and keep your case alive.

You can also modify your plan. This is particularly relevant if your income has changed significantly. If so, you may be able to file a motion to modify your plan and lower payments. But if the issue is only temporary, a suspension might be the most appropriate course of action.

Regardless, it’s important that you stay in regular communication with your attorney. Many dismissals could simply be avoided if people reached out to their attorney earlier in the process than they do. Ignoring missed payments can lead to dismissal and loss of bankruptcy protections, not to mention a wave of resumed interest and creditor actions.

Can I Convert My Chapter 13 Bankruptcy Into A Chapter 7 Bankruptcy?

Yes, you can convert your Chapter 13 case to Chapter 7, but only if you qualify. Eligibility for Chapter 7 is based on a three-part means test:

Current Monthly Income Vs. Median Income

Your income, calculated as the average of the last six months, is compared to the median for a household your size in Los Angeles County and Orange County, California.

Standardized Expense Deductions

If you’re above the median, you’ll subtract IRS standard living expenses and other allowable costs to determine whether you have disposable income.

Actual Income And Expenses Review

In addition to the first two parts, you must take the difference between your income (right now, not a six-month average) and you actual living expenses. That difference should be very close to zero.

If your income has recently dropped due to job loss, for example, this third step may be the deciding factor. It’s vital that you go through this analysis before converting to avoid having your case dismissed.

Will I Still Be Protected From Creditors If I Miss A Payment?

You will be protected from creditors if you miss a payment, but only for a limited time. When you file for bankruptcy, an automatic stay goes into effect. This prevents creditors from contacting you, suing you, garnishing wages, or seizing your property. However, if you start missing payments, the trustee may file a motion to dismiss, and your creditors will be notified. And if your case is dismissed, your creditors can immediately resume efforts to collect on your debts, including lawsuits, garnishments, and collecting accrued interest.

Tell your attorney as soon as possible if you miss, or expect to miss, a payment. Taking this initiative early on will go far to preserve the stay that’s in place and, keep you protected.

How Will Missing Payments Affect My Credit?

When you enter into a Chapter 13 bankruptcy and your plan is confirmed by the court, it becomes a binding agreement between you and your creditors. You’re expected to make regular plan payments and stay current on your taxes and secured debts. Failing to do so can negatively and severely impact your credit.

Credit bureaus don’t contact you directly; instead, they rely on creditors to report payment activity. Many creditors do this regularly to maintain accurate data, which they use to make informed lending decisions. The more complete and accurate the data, the more reliable the credit scoring models.

If you fall behind on your plan payments, your Chapter 13 trustee may not have funds to send to creditors. While creditors may wait initially, a motion to dismiss your case can prompt them to report missed payments, leading to negative entries on your credit report. While reporting accurate information isn’t typically seen as a violation of the automatic stay, so long as the creditor isn’t actively trying to collect, it can definitely harm your credit score.

What Legal Options Do I Have If I Can’t Afford My Payments?

To summarize the discussion above, If you’re struggling, you have a few options if you can’t finish Chapter 13 bankruptcy. They include:

Dismissing Your Case

You can voluntarily have your case dismissed. However, this often leads to a flood of interest accrual and various other actions by creditors, and you won’t receive a discharge.

Converting To Chapter 7

If you qualify, converting may allow you to discharge your debts more quickly, but you risk losing non-exempt assets.

Suspending Payments

If your financial hardship is temporary, a motion to suspend plan payments might be appropriate.

Modifying Your Plan

If your income has dropped, you may be able to reduce your plan payments through a formal modification.

Requesting A Hardship Discharge

If your plan is confirmed and your situation meets the specific criteria discussed above, you can petition the court for an early discharge.

You should always consult with your bankruptcy attorney before making any decisions pertaining to pursuing any of these paths. Doing so as early as possible gives you the best chance of preserving your case and protecting your financial future.

Ready To Get Started On Filing For Chapter 13 Bankruptcy Protection?

If you’re ready to file for Chapter 13 bankruptcy protection, call (562) 777-9159 today to have a seasoned bankruptcy attorney shepherd you through your case who is ready to assist you if your circumstances change during the pendency of your Chapter 13 case.