Securing a discharge through Chapter 13 bankruptcy is a lengthy process. Unlike Chapter 7 bankruptcy, which only takes a few months to complete, Chapter 13 cases require between three and five years of payments before a discharge is even an option.
People seeking financial relief through a Chapter 13 bankruptcy have to negotiate a repayment plan at a meeting attended by their creditors and a trustee appointed by the courts. Typically, people have to commit the vast majority of their disposable income toward monthly payments in a Chapter 13 bankruptcy case.
Can those who lose their jobs during a Chapter 13 bankruptcy face dismissal of the bankruptcy case and resumed collection efforts?
Plan modification is possible
Technically, the courts can dismiss bankruptcy cases when filers do not fulfill their obligations or no longer qualify. In a Chapter 13 bankruptcy, missing payments to the court-appointed trustee could lead to the dismissal of the bankruptcy case and possibly aggressive collection efforts from creditors.
However, those facing changes in their financial circumstances can continue with a Chapter 13 bankruptcy. They must notify the courts of their changed circumstances and ask for a post-confirmation modification to their repayment plan. In particularly severe scenarios involving a complete loss of income or other overwhelming challenges, it may be possible to convert a Chapter 13 filing to a Chapter 7 case.
Learning about the rules for different forms of bankruptcy can help filers protect themselves during financial hardship. Those who lose their jobs during Chapter 13 proceedings likely need to take prompt action to avoid bankruptcy setbacks.