Filed bankruptcy but lost my job. What are my options?

Recently on our legal forum a user wrote, “I filed Chapter 13 six months ago. I had every intention of following the terms of my Chapter 13 bankruptcy repayment plan. Last month, however, I lost my job. Now I realize there is no way I will be able to pay the payments. What are my options?”

Life is not always predictable. Even debtors who want to repay their debts may find that a job loss, death in the family, severe medical crisis, or divorce my derail their best laid plans. Instead of simply sitting back and not making payments just waiting for the bankruptcy trustee or other creditors to go back to court and ask for the court to dismiss your bankruptcy case, it’s important to proactively take some steps. Let’s review your options.

Options if you cannot follow your Chapter 13 bankruptcy plan

1. Review if there is any way you can make up the missed debt payments.

The best option if you have fallen behind on your Chapter 13 debt repayment plan is to review your options for making up the missed payments. Although this might be impossible if you have permanently lost your job, if you are able to quickly find new employment, borrow the money from a friend or family member, or sell some type of asset, it might be possible.

2. Ask the court if you can modify your Chapter 13 repayment plan.

Another option if you cannot make up the missed debt payments is to return to court and find out if you can modify your payment plan. The court will expect for you to provide information for a new repayment plan as well as evidence that you cannot make the current payments. If you have a bankruptcy lawyer contact them and review your modification options. Unfortunately, modifying a debt repayment plan will not be an option for all Chapter 13 bankruptcy filers.

3. Review your option to convert your Chapter 13 case to a Chapter 7 case.

If the reason you had to file a Chapter 13 bankruptcy initially was because your income was too high, if you have lost your job you might now qualify to convert your case to a Chapter 7 bankruptcy. If the court allows a conversion you may be able to quickly discharge certain unsecured debts such as credit card debts and medical bills. If you had mortgage debt in arrears that you were repaying through your Chapter 13 plan, however, you may no longer be able to get caught up on your payments. Talk to your bankruptcy lawyer about your options before attempting to convert your plan to ensure that any assets you have will be fully protected.

4. Determine if you qualify for a hardship discharge.

Under some conditions, the courts may allow debtors to discharge their debts under a hardship discharge if they determine that the debtor will not be able to complete their Chapter 13 debt repayment plan.

To request a Chapter 13 bankruptcy hardship discharge you will have to file a motion with the court and prove the following:

• You could not complete the plan due to circumstances beyond your control.
• The creditors have received as much as they would have received under a Chapter 7 plan.
• A modification of the current Chapter 13 bankruptcy repayment plan is not possible.

Review whether or not you must dismiss your case 

In some cases, after discussing your options with your bankruptcy lawyer, you may determine that none of the above options are possible. If that occurs, your only option may be to have your case dismissed. Before making this decision, however, you will need to discuss your case with a bankruptcy lawyer.

Bottom Line:

If you have lost your job you have several bankruptcy options to consider: requesting a dismissal, requesting a hardship discharge, trying to make up the missed payments, modifying your current Chapter 13 bankruptcy plan or converting from your current Chapter 13 plan to a Chapter 7 bankruptcy.