What Happens If You Cannot Complete Your Chapter 13 Debt Payment?

When you file for Chapter 13 bankruptcy, you have to pay off your debts as per a debt payment plan over the course of three to five years. The payment plan, which is dependent on your unique situation and financial resources, requires you to make monthly payments to your creditor(s).

However, there is a chance that you may face unexpected circumstances that require a huge sum of money. After all, three to five years is a long time, and no matter how much we plan, we are never certain of all the things that could happen to us. You may need serious and expensive medical treatment, you could lose your job, get a divorce, etc. No matter what your experience is, the point is that you may be in a position where you cannot complete your debt payment. In such cases, here are several options for you to consider:

  1. Request the Massachusetts court for payment suspension
    If you find yourself in a position where you cannot continue with your monthly debt payment, one of your first options is to ask the Massachusetts court to temporarily suspend your debt payments. However, keep in mind that you will have to provide the court with a good, solid reason as to why you require a suspension. Moreover, the trustee also needs to agree to your payment suspension request. The suspension usually cannot be longer than one to two months.
  2. Modify or amend your payment plan
    Another option to consider is making amendments and modifications to your Chapter 13 payment plan. If you experience any serious financial crisis which is likely to have an effect on your finances for a long time, this option may be available to you. Usually, the amount of your monthly payment is reduced, so you will have to propose the suggested changes to the court with the amount you can afford to pay monthly. You will also have to provide clear documentation of why you need this amendment.
  3. Consider converting to Chapter 7 bankruptcy
    If you believe that your financial position will not improve any time soon, you may be able to convert to a chapter 7 bankruptcy case. However, you will have to update all your statements and schedules. You will also be provided with a new trustee, and submit solid proof and documentation that you can no longer continue with your Chapter 13 payments because of an unexpected circumstance. Once converted, you will pay off most of your debts. However, priority debts like child support, vehicle loans, mortgages, etc will not be discharged.
  4. Consider applying for a hardship discharge
    If you really don’t think that you won’t be able to continue with your Chapter 13 payments, and you don’t have any other option, you can consider applying for a hardship discharge. However, you will have to convince the court that you cannot convert to Chapter 7, cannot afford to make changes to your existing repayment plan, won’t be able to continue paying even with a suspension, etc. Basically, you have to prove to the court that you have run out of all other options. Only then will it be approved. But priority debts are not paid off in this option.
  5. Dismiss your bankruptcy case, and then refile later
    Finally, if you cannot make payments despite having considered all the above options, you have one last chance of meeting your goals. You will have to dismiss the case entirely, and refile later when you believe your financial situation has significantly improved, and you can make regular monthly payments under Chapter 13 bankruptcy debt payment plan.