What If I Lose My Job After I File for Chapter 13 Bankruptcy?

If your income drops because of a job loss, your Chapter 13 bankruptcy options will include asking for a Chapter 13 plan modification or a hardship discharge.

By , Attorney

Life circumstances can change during a Chapter 13 plan, and it isn't uncommon for a filer's income to drop. Fortunately, the bankruptcy system is flexible enough to accommodate unexpected events. Even so, lowering or "modifying" a monthly plan payment after an income loss isn't easy. Other options include:

  • asking for an early Chapter 13 discharge
  • switching or "convert" to Chapter 7, or
  • dismissing your bankruptcy case.

If you haven't filed yet, find out more about how bankruptcy works and other helpful things about bankruptcy. And check out our quick ten-question bankruptcy quiz—it can spot potential bankruptcy issues fast.

Lowering a Chapter 13 Payment After a Job Loss

When you proposed your Chapter 13 plan, you explained how you intended to pay each of your creditors, and the judge checked that each creditor would get the amount they were entitled to receive.

The judge can't deviate from the rules for secured, priority, and unsecured debts, so lowering your Chapter 13 payment gets tricky. The bankruptcy judge can only adjust it if:

  • you return a house, car, or other secured property to the lender and eliminate the amount you're paying toward the monthly property payment and arrearages
  • you sell an RV, boat, or other property you couldn't protect with an exemption and eliminate that portion you're paying to keep nonexempt property (you'd pay the sales proceeds to the trustee), and
  • reduce the amount paid to credit card balances, medical bills, student and personal loans, and other nonpriority, unsecured debts (debts that aren't guaranteed with collateral property).

It wouldn't be surprising if you didn't like any of the choices.

The problem with the first two options? You probably filed for Chapter 13 to keep your home, car, or other nonexempt property you'd have lost in Chapter 7, and it's unlikely that you'll want to part with these things now.

The problem with the last option? Even if you reduced that amount to zero, your plan payment probably wouldn't change much. Most filers don't pay a lot toward credit card balances, medical bills, and other nonpriority, unsecured debts.

How to Check Whether You Can Modify Your Plan

Even if it's unlikely that you'll be able to lower your payment enough to stay in Chapter 13, it's worth checking. Find your plan and review it while reading how to calculate your Chapter 13 plan payment. The article will help clarify what you can and can't eliminate.

If you find that you earn enough to pay a modified payment, your bankruptcy attorney can ask for it by filing a Chapter 13 modification motion.

Other Chapter 13 Bankruptcy Options After a Job Loss

You can ask for an early discharge based on a job loss hardship, but courts rarely grant them. You must have already paid your unsecured creditors (those holding debt for credit cards, medical bills, student loans, and other unsecured debts) the amount they would have received had you filed for Chapter 7. It's challenging to meet this criterion because most plans don't pay unsecured creditors until the end. But it is possible.

You'll also want to consider converting to Chapter 7 bankruptcy. You'll wipe out qualifying debts quickly, but you could lose property. Also, qualification rules vary by jurisdiction, so you'll want to talk to your lawyer about the procedures.

You can also dismiss your case or stop making payments and wait for the court to dismiss your case. You'll receive credit for amounts paid, but your creditors can add any stayed interest to the outstanding balance.

Navigating a Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

You'll find fillable, downloadable bankruptcy forms on the U.S. Courts bankruptcy form webpage.

Related Information

What to Do if You Can't Keep Up With Your Chapter 13 Repayment Plan

Refiling If Your Chapter 13 Case Is Dismissed For Non-Payment

When Can Chapter 13 be Converted to Chapter 7?

Can I File for Chapter 7 Bankruptcy If I Am Unemployed?

When Is My Bankruptcy Case Over?

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

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