Chapter 13 Plan Payments Can Change If Family's Financial Situation Changes During Plan

I often have to explain to prospective Chapter 7 bankruptcy debtors that they are ineligible to file Chapter 7 and fail the means test because they make too much money relative to their expenses. The means test forces these debtors to pay back some of their unsecured debts in a Chapter 13 bankruptcy. A common question is what happens if these reluctant Chapter 13 debtors experience a reduction of income in the future in today’s poor economy. Are people bound to a fixed Chapter 13 monthly obligation even if they experience future income loss or unexpected family expenses?

Chapter 13 bankruptcy is flexible. The process permits changes in the debtors’ plans as circumstances change during the term of the repayment plan. Debtors are supposed to furnish to the Chapter 13 Trustee office annual tax returns. If a debtor’s income increases significantly so that family disposable income goes up, the Chapter 13 Trustee may ask that debtor’s monthly plan payments be increased thereafter. On the other hand, if a debtor in Chapter 13, or their spouse, loses a job so that there is no longer any money left each month after basic expenses the debtor can convert his bankruptcy to a Chapter 7 liquidation. Absent job loss, if a Chapter 17 debtor experiences income reduction or a significant increase in expenses (at least 10 % difference) then the debtor can submit a modified Chapter 13 plan for consideration by the court. Just because bankruptcy law requires you to file under Chapter 13 based on your current family economics does not make you a prisoner to a fixed Plan payment regardless of how the future changes your ability to repay some of your debt.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida