My Chapter 13 payments are too high and I need help. I've been in my Chapter 13 bankruptcy case for over two years, but I recently received a pay cut and can't afford my current Chapter 13 plan payment. What can I do to reduce my monthly payment amount?
If your income goes down during your Chapter 13 bankruptcy and you can no longer afford your monthly plan payment, you can ask the court to modify your Chapter 13 repayment plan and reduce your payment amount. Whether the court will allow you to lower your plan payment will depend on several factors. If temporary relief will do, you can ask the trustee to defer your payment for a short period.
When you file for Chapter 13 bankruptcy, you propose a plan to pay back a portion of your debts. But a Chapter 13 repayment plan typically takes three to five years to complete, and it's common for debtors to experience income fluctuations.
If your income goes down, a court might modify your plan and reduce your payment amount. But it's not always possible because your income is a critical part of calculating your Chapter 13 plan payment.
In addition to your income, your monthly plan payment amount depends on:
Because the bankruptcy judge can't change the Chapter 13 payment rules, the last two factors affect whether a payment reduction is possible. Here's how.
You must repay certain debts. The judge won't have the wiggle room needed to reduce your payment if all you're repaying is alimony, child support, or priority tax obligations, all of which are debts you must fully repay in Chapter 13 bankruptcy.
But if your plan includes debts you don't have to pay in full, such as credit card debt, medical bills, or personal loans, you might be able to reduce how much you pay those creditors to zero. However, it isn't always possible because you must also comply with the next rule.
You must pay to keep nonexempt property. Under the "best interest of creditors" test, unsecured creditors must receive at least as much as they would have received in Chapter 7. The simple way to calculate this amount is by adding up the value of your nonexempt property or the property you'd have lost in Chapter 7. Then subtract that amount from the amount you're paying to your unsecured creditors—creditors with debt that isn't protected by collateral, like a house or car.
If any amount remains, check whether it's being used to pay off alimony, child support, or a priority tax obligation. If not, the judge could lower your payment by that amount.
Example. Jane owns a car worth $25,000 free and clear. But her bankruptcy exemptions only allow her to exempt $15,000 of the car's value, leaving a nonexempt amount of $10,000. So she must pay her unsecured creditors a minimum of $10,000 through her Chapter 13 plan (maybe less if the court allows a deduction for sales costs). If Jane's proposed reduced Chapter 13 payment would mean she couldn't pay $10,000 to her unsecured creditors, the court won't reduce her plan payment.
Suppose you want to reduce your payment amount after the court approves or "confirms" your Chapter 13 plan. Typically, you'd file a modification motion with the court and serve it on the bankruptcy trustee and your creditors.
In most cases, you'll obtain a hearing date, provide a written declaration as to why your plan payment should be reduced, and propose an amended Chapter 13 plan. The judge will consider plan objections at the confirmation hearing.
Depending on the facts of your case, if you can't modify your plan to reduce your payment amount, you might be able to:
Yes, it's possible, but likely not for long. Your first option is to approach the Chapter 13 trustee. In some instances, the Chapter 13 trustee will defer payment for a month or two. But you should anticipate increasing your monthly payment until you catch up. Here's why.
When you proposed your Chapter 13 plan, you calculated the interest amount you'd need to pay creditors. If you miss a payment, your mortgagor or possibly another creditor will assess a late fee and other penalties, increasing the amount of money the trustee would need to keep your payment current. (This problem can also occur when a mortgagor adjusts your monthly payment amount to reflect increases in escrowed payments such as property tax and homeowner's insurance.)
Most attorneys build a small amount into the plan to cover such contingencies, but it won't be much. So the trustee won't have the ability to defer your payment for long, even when extra money is available.
If the trustee were to allow you to fall behind for months, you'd likely find yourself still owing at the end of the plan. The trustee will want to avoid that situation, so expect the trustee to ask the court to dismiss your case sooner rather than later. If the trustee won't or can't defer your payment, your attorney might find a way to adjust your plan and file a motion with the court asking for "relief" or the help you need.
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
You'll find fillable, downloadable bankruptcy forms on the U.S. Courts bankruptcy form webpage.
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 Chapter 13 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.