Consumer Bankruptcy:

Inability to Pay

In the event that a debtor cannot complete a Chapter 13 repayment plan (for example, because he or she loses a job), the bankruptcy trustee may modify the plan. Possible modifications include:

  • Providing a grace period, if the failure to pay appears to be a temporary problem
  • Reduction of monthly payments
  • Extension of the repayment period

If it is clear that the debtor will not be able to complete the plan, due to circumstances beyond his or her control, the court may allow for a discharge of the debts due to hardship. Potential examples of this include serious illness or the closing of a production facility in a one-factory town.

In the event that the court does not allow a modification or discharge due to hardship, there are still options. The first is to switch to a Chapter 7 plan. This is possible, unless the debtor has received a Chapter 7 discharge within eight years or a Chapter 13 within six years. The second option is to request that the Chapter 13 case be dismissed by the court. The debts will still be owed, though obviously payments made will be deducted. However, creditors will also be able to add on interest that they could not charge will your Chapter 13 case was pending.

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