Information on Modified Chapter 13 Bankruptcy

Background

In a Chapter 13 bankruptcy, you must adhere to a strict repayment program to pay off your debt. The repayment plan is put into place by the bankruptcy court after reviewing your debts and income. If at any point your income level changes and you are not financially capable of meeting the repayment requirements, you may request that your bankruptcy plan be modified. If you do not request modification yet cease to pay the agreed upon amounts to your creditors, your bankruptcy will be dismissed.

Chapter 13 bankruptcies offer repayment plans ranging from three to five years depending on your income and debt level. If you request a modification to your plan, your repayment schedule will be structured so as to still fall within the standard Chapter 13 time parameters. Your attorney must present a modified plan that will permit you to pay your debts within five years. No Chapter 13 plan can be extended beyond five years. If paying your debts within five years is not a possibility, your bankruptcy will either be dismissed or converted to a Chapter 7 bankruptcy.

A modified Chapter 13 plan allows you to continue to adhere to the rules set forth by the bankruptcy court without going beyond what you can comfortably afford. In the event of a large loss of income, modification may be available to a much greater extent--conversion to a Chapter 7 bankruptcy. In this case, the remainder of your unsecured debt will be written off and your secured debts will be liquidated by the court. Chapter 7 bankruptcies only take a few months to discharge.

Each year that you are involved in a Chapter 13 bankruptcy you will be required to provide the court with a copy of your tax return. If you have experienced a significant change in income, you will not be able to hide those changes from the bankruptcy court. Increased earnings will almost certainly result in immediate changes to your plan. Decreased earnings, however, may not result in modification unless you request that changes be made.

Any time a payment plan is presented, your creditors are notified and given the opportunity to reject the proposed plan. If you already have an accepted repayment plan, your creditors may be hesitant to accept less than what was originally agreed upon. If both parties cannot reach an agreement, your case will be dismissed or converted to a Chapter 7 bankruptcy. Creditors know that if this occurs, they are unlikely to receive any payments in the future. Because of this, most will be willing to compromise with you.