Chapter 13 bankruptcy helps you eliminate debt by following an extended payment plan towards your debts, usually for less than the original debt you owe. The payment plan can extend over three to five years, within which a lot can happen.
A change in income could alter your monthly payment plan, sometimes increasing your monthly payment. What do you do when your Chapter 13 payment is too high? Can you drop the plan before the lapse of the payment plan? We will answer all your questions in our article which will explain the following:
1. What to do if your monthly payment under a Chapter 13 plan payment is too high?
2. Other debt relief options available besides Chapter 13 bankruptcy
3. The benefits and downsides to each of these debt relief options
4. The importance of a debt relief comparison tool
My Chapter 13 Payment is Too High; what do I do?
If your monthly payments are too high, several options are available. You can:
Request a Deferment
If you are experiencing a temporary financial challenge and believe things will get back on track soon, you can petition the court for a deferment. A deferment is a short period, usually two or three months, during which you will not make payments to the plan. However, you need a valid reason for the deferment for the court to grant you one. A deferment will only work if your Chapter 13 plan is flexible enough to allow you to add up to three months to your plan and still be within the maximum five-year term for a Chapter 13 plan.
Get a Chapter 13 Dismissal
Since you filed a Chapter 13 bankruptcy case voluntarily, you can choose to get your case dismissed, which means you will stop making your payments. Despite assigning a trustee to your case to follow up with your payments, the court cannot compel you to remain in a Chapter 13 plan if you don't want to continue.
Failure to make your payments as you should lead to the court dismissing your case. If your case gets dismissed, the automatic stay will be lifted, and your creditors will continue debt collection efforts. While they will acknowledge any payments you made towards the debt, they might continue efforts to collect the remaining portion of the debt. They might file debt collection lawsuits, repossessions, wage garnishment, and foreclosures.
Lower Your Payment
A change in income will affect your monthly payment. If your income has recently decreased, you can notify your trustee. Usually, a decrease in income might mean a reduction in your monthly payments. You will need to prove the reduction in income was not intentional to help avoid making payments towards your debts and that the decrease in income is permanent or will remain low throughout the plan.
Apply for a Personal Loan
You should not incur more debts while in bankruptcy. But if you are unable to meet your payments, you might consider applying for a personal loan. Go through this guide on applying for a personal loan in Chapter 13. You will need to discuss this with your attorney and involve the trustee to get the loan approved.
Converting Your Bankruptcy Case to Chapter 7
When filing for bankruptcy, Chapter 13 bankruptcy might have been the best option for you at the time. But as years go by and dynamics change, you might need to convert your bankruptcy case to a Chapter 7.
If you were not previously eligible to file for Chapter 7 bankruptcy, but your income has decreased, you might now qualify to file. For example, if your reduction in income is permanent or has suffered a disability and can no longer work, you qualify to file for Chapter 7 bankruptcy. It takes a shorter time and is cheaper than Chapter 13 bankruptcy.
Converting to chapter 7 bankruptcy can see you get your unsecured debts discharged without making further payments. Use this Chapter 7 Means Test Calculator to determine if you can file for Chapter 7 bankruptcy. Here are some things to consider before converting.
Your Nonexempt Equity in Property?
Chapter 7 is known as liquidation bankruptcy. In Chapter 7, the trustee will liquidate your assets and use the proceeding to offset your debts. Fortunately, there are bankruptcy exemptions that protect an amount of equity in an asset. In Chapter 13, non exempt equity will result in higher payments in your plan, while in Chapter 7, it will result in a bankruptcy auction. Therefore, you stand to lose the property. Consider if you have non exempt equity in your property to avoid losing most of your assets.
Secured loans: Car Loans and Mortgages
The two most common secured loans are car loans and mortgages. If you have already fallen behind on your car loan or mortgage payments, your lender might fight for repossession or foreclosure. Under Chapter 7, the creditor will require you to make your payments and come up to date immediately. So, it is important to review how much of the secured debts you owe and decide if you are willing to let the lender take the security you took against the loan to recover the debt.
Priority Unsecured Debts
Unsecured debts are often dischargeable. However, a priority unsecured debt is one you must repay in full, such as child support or income taxes. They are not dischargeable in bankruptcy, and you must repay them even after your Chapter 7 bankruptcy case ends. Failure to repay these debts might result in wage garnishment or lawsuits against you. If you are yet to complete payments for these debts in your current Chapter 13 plan, be prepared for collection actions from your creditor.
You might also qualify to file a Chapter 7 bankruptcy case upon completing your Chapter 13 bankruptcy case if you choose not to convert. Nevertheless, it is cheaper to convert than file bankruptcy again.
Debt Relief Options After a Chapter 13 Dismissal
If you are considering following through with a Chapter 13 dismissal, then you should know once the court dismisses your case, you will be legally obliged to repay the debts. Thus, it is wise to consider other debt-relief options available post-dismissal to manage your debts before they overwhelm you.
Use this calculator to compare different debt relief options- bankruptcy (Chapters 7 and 13, debt payoff planning, debt settlement, and debt management. The calculator will dive deep into each of the options, giving you estimates and fees for each option depending on your debts. It will also provide an analysis of the key options and offer insights and options to help you make an informed choice.
Secured vs. Unsecured Debts In Chapter 13?
You can get rid of some unsecured debts like personal loans, medical debts, utilities, rent payments, etc. however, some unsecured debts, like student loans, may be unsecured but cannot be discharged in bankruptcy.
Although you will be paying your unsecured creditors, you will often pay less than the total debt owed as they receive only a percentage of the total debt. Upon completing your chapter 13 plan, the court will forgive the remaining amount owed to your creditor by granting you a debt discharge.
Not all unsecured debts can be discharged. There are priority unsecured debts, like income taxes, administrative costs, money owed to the government, and child support payments or alimony. Priority unsecured debts must be paid in full and will be included in your payment plan.
Secured debts are treated differently since the creditor has a lien on collateral. The bankruptcy court will address secured debts differently in your repayment plan. For example, if you have an outstanding mortgage and want to keep your home, you must continue making your mortgage payments.
You can catch up with the due payments through your bankruptcy plan. For a car loan, there are some requirements that you should meet to decrease the outstanding debt owed and to qualify to get a lower-interest loan. Chapter 13 bankruptcy accounts for most car loans and ensures you complete your payment on the car at the end of your plan.
4 Debt Relief Options Available to You Should Your Case Get Dismissed
If you cannot afford your Chapter 13 plan payments and the court dismisses your case, four options are available to help you get rid of debt.
It is the next best option after bankruptcy. Debt settlement is a debt relief PythonAnywhere you negotiate with your creditors through a debt settlement company or an individual to ask them to accept a lump sum payment for less than the original debt. However, should your creditors agree, the amount forgiven might be considered income and be subject to taxation. Thus, it may increase your tax liability.
It is a program that helps debtors manage their bets in a way that makes it easy to keep up and repay the debts. Numerous resources are available to debtors to get the necessary information and tools to manage their debts without needing to take on an additional loan, settle debts, or file for bankruptcy. It is the best option if you have income but trouble managing your debts.
Debt Consolidation Loan
You can also get a debt consolidation loan which helps you offset all your debts. Most lenders will require the debtor to provide collateral for the debt consolidation loan. Debt consolidation will combine all your debts into a single monthly payment. So, ensure the monthly payment is affordable to avoid losing your home, property, or collateral submitted. Otherwise, the debt consolidation loan will not be the best debt relief option.
Debt Payoff Planning
We devote ourselves to providing tools and resources that debtors can use to obtain relevant information, manage their finances, and pay off their debts. One such resource is the Savvy Debt Payoff app, which can help you manage your finances and repay your debts without filing for bankruptcy or working with a debt settlement company.
Would you like more information on any of the debt relief options? Feel free to contact us online. You can also call or text us to speak with one of us.