A Chapter 13 “adjustment of debts” usually costs much more than a straight Chapter 7 case, take three to five years instead of only a few months, and are less often completed successfully. Still, those downsides of Chapter 13 bankruptcy can be worthwhile considering its sometimes huge benefits. To help make a good decision about this, be aware of your options if things change while you’re in the middle of your Chapter 13 case.
Chapter 13 can be much more powerful than Chapter 7. It can give you tools for solving your financial problems in ways Chapter 7 can’t. It costs more because often it does so much more. The higher price can be far outweighed by the greater amount of debt discharged. The length of a Chapter 13 case can actually be a key advantage, gaining you longer protection or reducing a monthly payment by giving you more time to pay it.
But Chapter 13 still takes years to finish, so it is only sensible to become familiar with what options you would have while you’re in a Chapter 13 case if your circumstances were to change.
MODIFYING YOUR CHAPTER 13 PLAN
Your plan presents in detail the obligations under your Chapter 13 case. Particularly it specifies how much you are to pay to your trustee, and how that money is to be distributed to your creditors. If months or even a couple years after the plan is approved by the bankruptcy judge your income and/or expenses change, or you have some other significant change, these can often be taken care of through a “modified” plan, one with new payment terms. After going through an approval process and being signed by the judge, it becomes your new plan though to the completion of your case.
DISMISSING YOUR CASE
Most of the time you can close down your Chapter 13 case whenever you want, by simply having your attorney file a simple motion to dismiss. It’s very simple to do, although should not be done lightly. Filing a Chapter 13 case, and everything related to it is a huge investment of time, effort and money, so don’t start a Chapter 13 without intending to complete it successfully.
Because dismissing your case means that you will not discharge your debts but will rather still owe them, voluntary dismissals usually happen in unusual circumstances. It is used, for example, to close your case so that you can file a new one, such as to add new unexpected creditors.
CONVERTING TO CHAPTER 7
Sometimes you experience a change in your financial circumstances so significant that staying in Chapter 13 is no longer feasible. Or your purpose for being in Chapter 13 is becomes no longer valid. For example, you may have filed your Chapter 13 case to save your house, but then got a job in another state so that the house is no longer important to you. Since dismissing a Chapter 13 case leaves you still owing all your debts, converting to Chapter 7 usually solves this problem by discharging all or most of your debts through the Chapter 7 case.
This last procedure is less often used but can be under the following conditions: if 1) you can’t finish your Chapter 13 case because of circumstances outside your control, 2) your plan cannot be modified In a way your case to be continue, and 3) your creditors have received in your Chapter 13 case as much (if any) as they would have received if you had filed a Chapter 7 case instead. If so, then you get a “hardship discharge” of your debts, even though you have not finished your plan payments. A hardship discharge is somewhat more limited than a normal discharge, but can still be your best option in some situations.