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What Happens if I Can’t Pay my Chapter 13 Payment Plan?

November 21, 2014 by  
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payment planMany people who are experiencing financial problems and make a consistent monthly income can benefit from filing for Chapter 13 bankruptcy1. Under Chapter 13, a debtor’s debts are reorganized under a court approved plan and monthly payments are made to the bankruptcy trustee who distributes the money amongst various creditors. While payments are being made, a debtor’s assets are protected from collection attempts including repossession and foreclosure. In many cases, debtors who are at imminent risk of losing their assets are able to keep them by filing Chapter 13.

The Hardship Discharge

People who enter into Chapter 13 bankruptcy must make payments to a Chapter 13 trustee. In some cases, it may become impossible for the debtor to keep making payments due to circumstances out of their control. In this circumstance, the debtor may be eligible for a Chapter 13 hardship discharge under 11 U.S.C. § 1328(b)2. Under this provision, a debtor may be entitled to a discharge of his or her debts if:

  • The circumstances making the debtor unable to pay his or her debts are beyond the debtors control and exist through no fault of the debtors
  • Creditors have received at least much as they would have received had the debtor filed for Chapter 7 bankruptcy
  • Modification of the plan would not be practical

This type of discharge is more limited than the discharge that occurs at the end of Chapter13 and does not include any debts that would not be discharged in a Chapter 7 bankruptcy. Examples of the types of circumstances that may justify a hardship discharge include illness or injury that would make it impossible for a debtor to pay even under a modified plan.

Contact a Phoenix bankruptcy attorney today to schedule a free consultation

Anyone considering Chapter 13 bankruptcy or seeking a hardship discharge should discuss their situation with an experienced bankruptcy lawyer as soon as possible. In many cases, the assistance of a lawyer can have a significant impact on the outcome of a judicial proceeding. Attorney Ronald J. Ellett has been assisting Phoenix residents file for bankruptcy and obtain a fresh start for over 20 years. To schedule a free consultation with Mr. Ellett, call our office today at (602) 235-9510.

1Source: http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter13.aspx

2 Source: http://www.law.cornell.edu/uscode/text/11/1328