Chapter 13 Bankruptcy: Filed, but in trouble?
WHAT TO DO IF YOU HAVE FILED A CHAPTER 13 BANKRUPTCY BUT ARE IN TROUBLE?
You are a Washington State resident and your Chapter 13 bankruptcy filing is in trouble. The automatic stay has been lifted on your house, or the plan payments are behind and the trustee is threatening to dismiss your case, or you’ve finally decided that the house isn’t worth the headaches you’re going through, and you just want out.
What do you do?
One option is to dismiss your case, which you have a right to do at any time in a Chapter 13 bankruptcy filing. But this may leave you with lots of very late credit card debt or other debt, or you may be worried that the house or car will sell at foreclosure or repossession for less than you owe, and that the lender will go after you for a deficiency judgment.
What are your options?
Bankruptcy Hardship Discharge: After confirmation of a plan, circumstances may arise that prevent the debtor from completing the plan. In such situations, the debtor may ask the court to grant a “hardship discharge.” 11 U.S.C. § 1328(b). Generally, such a discharge is available only if:
(1) the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor;(2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and(3) modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. § 523.
Chapter 13 bankruptcy conversion to Chapter 7 bankruptcy filing: This is governed by 11 U.S.C. § 1307(c). A conversion is very easy. All you need to do is have your attorney file a Notice of Conversion with the Court, pay the conversion fee, and that’s it–the Court will convert your case to a Chapter in a few days.
What does the conversion mean?
1. Any money that the Chapter 13 Bankruptcy Trustee is holding, less any administrative fees that the Trustee is due, will be returned to you. Any plan payments that are withheld from your paycheck (it sometimes takes 4-6 weeks to get the wage withholding order stopped) after the conversion will be returned to you.2. A new Chapter 7 Bankruptcy Trustee is appointed (and you don’t have to deal with the Chapter 13 Trustee any more).3. A new Meeting of Creditors is scheduled.4. You will have to file a Statement of Intention.5. You can file amended schedules adding any debt you have taken out between the filing of the Chapter 13 Bankruptcy and the date of conversion. This is especially common if you have medical bills.6. You may have to file Amended Schedule I (Income) and J (Expenses) to reflect any changes.
Once your case is converted, you will normally get your Chapter 7 Bankruptcy discharge in 3-4 months.If you convert your case, you lose the right to cure arrearages through a reorganization plan. This may result in your losing your house or car if the payments aren’t brought current quickly.
Modification
Modification is governed by 11 USC Section 1329: The plan may be modified at any time after confirmation but before the completion of the plan payments, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim. A Motion must be filed requesting permission from the court to modify a confirmed plan. The filing must contain only one copy of the Motion and one copy of the proposed Amended Plan, if desired. A 21-day objection notice is issued to all creditors. A copy of the motion is distributed with the notice. The Motion must have been signed by the debtor(s), or attorney for debtor.
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