A Chapter 13 plan requires you to catch up on some or all of your debts. For this reason, to succeed in a Chapter 13 case, you will need to have more income than when you fell behind on your debts. Otherwise, you will have to live on a very tight budget during the plan.

Many Chapter 13 plans fail. There are no grace periods for payments under a Chapter 13 plan. If you miss payments under the plan, the bankruptcy trustee may ask the court to dismiss your case for non-payment. When this happens, you also lose the protection of the bankruptcy, and all original debts are reinstated. If the trustee seeks to dismiss your case for missing a payment, you can file a written opposition in court to explain your circumstances and argue your position at a hearing. You should explain why you missed your payment, and how you will be able to make the payment if you have more time.

To try and avoid that situation, as soon as you know there might be an issue with making a timely payment under your Chapter 13 plan, speak with your lawyer (if you have one) and the trustee. The trustee may agree to let you defer a plan payment (if, for example, you have a temporary financial hardship that is making it difficult to pay). Deferring a payment or two might be all you need to catch up with your plan payments. You may also consider asking the court to modify your plan if your circumstances have changed (e.g., loss of employment or a large medical bill arose).

Plan Modification

Changes in your financial situation might make it difficult to make ongoing plan payments for the foreseeable future. If that is the case, you can ask the court to reduce your plan payment amounts by filing a motion. The motion should:

1. Explain the reasons why you want to modify your plan,
2. Propose a new payment plan, and
3. Provide the court with as much documentation as possible to support your request. If the court grants your motion, it will formally adjust your payment amount for the remainder of your plan.

Hardship Discharge

In some rare circumstances, you can ask for a hardship discharge after failing to complete the repayment plan. Usually, such a discharge is available only if:

• Your failure to complete plan payments is due to circumstances beyond your control and through no fault of your own,
• Creditors have received at least as much as they would have received in a Chapter 7 bankruptcy, and
• Modification of the plan is not possible.

For example, your injury or sickness that prevents you from working can be the basis for a hardship discharge. A hardship discharge will not eliminate all debts, and many types of debts will still continue even if a hardship discharge is granted. For example, the following debts typically still continue after a hardship discharge:

• Taxes (state and federal),
• Student loans,
• Child support, alimony, and other debts arising from a divorce or separation, and
• Secured debts (if you kept the property, like a house or car).

Conversion to Chapter 7

If you are unable to modify your plan, and if you would not benefit from a hardship discharge, you may consider converting your Chapter 13 case to a Chapter 7 case. To be able to do this, you will first need to qualify under the means test. 

Converting to Chapter 7 will discharge all qualifying debt, as long as you have not received a Chapter 7 discharge within the previous 8 years. However, unlike with a hardship discharge, a Chapter 7 bankruptcy trustee will sell your nonexempt property to pay your creditors.

Case Dismissal

If plan modification, a hardship discharge, or case conversion do not work for you, you can always let the court dismiss your case and refile another Chapter 13 case once your financial situation improves.