A Chapter 13 bankruptcy is a three to five year repayment plan, whereby a debtor pays as much as he or she can afford each month and receives a bankruptcy discharge of their remaining debts after successfully completing their plan payments.
Chapter 13 bankruptcies require strict budgeting. The court only allows a debtor to spend money on reasonable and necessary living expenses and bills. All of the remaining income is required to be paid towards their debts. The journey may be difficult but the reward for successfully completing a Chapter 13 bankruptcy is great, as the debtor can find that much of their debt may be legally forgiven by the court through the bankruptcy discharge.
Although the bankruptcy court is strict in regards to what the debtor is allowed to spend money on during a Chapter 13 bankruptcy, the bankruptcy court understands that life happens and that unexpected events can bring about unforeseen expenses. For instance, a debtor’s vehicle may need four new tires, a debtor may need expensive medical treatment, or a debtor may experience a layoff from their employment. If any of these situations arise, the bankruptcy court will often allow the debtor to modify their Chapter 13 plan on a temporary or permanent basis to accommodate the change in financial circumstances. As long as the modified payment plan is reasonable based on the circumstances, and the plan still provides a minimum amount of payment to the debtor’s creditors, it will be approved by the bankruptcy court. In some circumstances, if a plan modification is not possible, the debtor may look into converting their Chapter 13 bankruptcy to a Chapter 7 bankruptcy. The court will allow a debtor to convert their case to a Chapter 7, as long as the debtor is not converting their case in bad faith to defraud or harm their creditors, the debtor is under median income, and it is in the debtor’s best interest to be in a Chapter 7 bankruptcy instead of a Chapter 13 bankruptcy (i.e. debtor does not have much property that could be lost in a Chapter 7).
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Chapter 13 bankruptcies are not meant to be frightening. A significant change in financial circumstances can be managed in a Chapter 13 bankruptcy through a plan modification. It is wise to seek advice and representation from an experienced bankruptcy attorney, to ensure that you have the best chance of successfully completing a Chapter 13 repayment plan. Come visit us at our new office in the Cathedral Hill neighborhood of St. Paul, Minnesota, or come see us at LifeBackLaw.com!
