Adjusting a Chapter 13 Repayment Plan After a Sudden Job Loss

Sometimes, Chapter 13 bankruptcy is referred to as the “wage earner’s plan,” because it enables someone with a steady income to manage their debt load while avoiding harassment from collectors. Of course, nothing is certain in life, so what happens if you lose your job during the middle of your repayment schedule? 

As part of their Chapter 13 case, Individuals seeking financial relief must commit to a structured repayment plan. The debtor must make between three and five years of monthly payments, which the bankruptcy trustee then distributes to their creditors. This arrangement helps ensure accurate compliance with the plan and limits opportunities for conflict.

Typically, filers must commit the vast majority of their disposable income toward their monthly payments and are only eligible for a discharge of the remaining balances due on their debts after they pay down what they owe. However, if a filer’s financial circumstances change abruptly, the terms set in their initial plan may no longer be reasonable.

A sudden job loss might make it impossible for a Chapter 13 debtor to cover basic expenses and still make their required monthly payment under the plan. In scenarios where a filer has an alternate source of income or residual savings to support them until they secure new employment, it may be possible to request a modification of the existing plan. A review of the filer’s new financial circumstances can lead to substantially lower monthly payment obligations. They then need to report any subsequent increase in income when they get a new job.

In some cases, unemployment may extend for multiple months. Well-compensated and highly-skilled workers are often at risk of protracted gaps in employment, especially if they lose their jobs unexpectedly. If a total loss of income persists for multiple months, another option might be available.

Should the filer’s lower income qualify under the means test, it is possible to petition the courts to convert the case from a Chapter 13 filing to a Chapter 7 proceeding. The filer would become eligible for a much more rapid debt discharge, but they may face liquidation requirements prior to eliminating those obligations.

Adjusting the repayment plan or converting a Chapter 13 case to a Chapter 7 case can help people maintain financial stability if their original repayment plan is no longer feasible. Chapter 13 bankruptcy filers facing complications often need legal support to avoid unfavorable outcomes, such as the courts dismissing their case without granting them a discharge.

Jeff Field & Associates has decades of experience helping Georgia residents throughout the Chapter 13 bankruptcy process. We assist clients across Georgia from offices in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur. Please call 404-381-1278 or contact us online to schedule a consultation.