Does My Chapter 13 Payment Change With My Income?

The decision to file for bankruptcy is not one to take lightly. With the multiple bankruptcy plans available and the changes to bankruptcy law that occurred in 2005, it is important to be an informed about options from various scenarios. If you are considering filing for bankruptcy but have concerns about what may happen should your income change, here is an overview of the facts.

Chapter 13 is called the wage earner’s plan and allows people with a regular income to develop a plan for repayment of debt.  Even people who are self-employed can file for Chapter 13.  Under Chapter 13, debtors propose a repayment plan to pay all or a portion of their debt over the period of five years, depending upon monthly income. Chapter 13 is eligible for people who are self-employed or operating an unincorporated business as long as the individual’s unsecured debts are less than $336,900 and secured debts are less than $1,010,650. There is no minimum debt requirement for Chapter 13. For income above median, Chapter 13 must run for five years with expenses determined by IRS collection standards. Below or at median income debtors are eligible for a three-year-plan with payments determined by actual expenses versus IRS guidelines.

One of the most common questions people have about Chapter 13 bankruptcy is what happens if your financial situation changes during the duration of the plan? After all, a Chapter 13 plan runs from between three to five years and a lot of life can happen in that period of time. What happens if your income changes during that time, can your payments be adjusted?

Fortunately, Chapter 13 bankruptcy does have a great deal of flexibility in case of a change of income or expenses during the duration of the plan. Many times the court can agree to modify your plan to make it work. This often involves a lowering of monthly payments which debtors are obligated to pay.

If your situation changes significantly, Chapter 13 has what is called a “hardship discharge”. This happens when a Chapter 13 plan is confirmed but circumstances come up that prevent the debtor from completing the plan. However, there are standards to qualify for a hardship discharge which make it available only if: the failure to pay comes from circumstances beyond the debtor’s control, creditors have received at least as much money as they would have received under Chapter 7 where assets are liquidated, and if modification of the plan is impossible.

If you are seriously considering bankruptcy and you live in North Carolina ,  you need to consult with an attorney who understands North Carolina bankruptcy laws. While the process appears complicated, a North Carolina bankruptcy lawyer will be able to help you understand your options and avoid making bad decisions that you could later regret. Law Offices of John T. Orcutt specializes in bankruptcies. Every day, they help people get out from under debts from $10,000 to $1,000,000 and higher. So far, they’ve wiped out over 100 million dollars in debt. They even created the software that is now used by other leading bankruptcy law firms throughout the country! You need Law Offices of John T. Orcutt.  No other law firm is better qualified to bring you the fastest debt relief and do it right the first time.

Author: Carl Gustafson