Job Loss And Chapter 13 Bankruptcy
Chapter 13 bankruptcy is sometimes referred to as a debt reorganization or debt reallocation bankruptcy. It can be a financial life raft for those who have a steady stream of income but have fallen on hard times due to medical bills, divorce, credit card debt or other unforeseen circumstances. Chapter 13 bankruptcy involves the creation of a reasonable payment plan that a debtor can follow to repay creditors. These are uncertain economic times though, and many people worry about being laid off, let go or pushed into an early retirement. Read on to better understand the ramifications of losing a job before completing a Chapter 13 repayment plan.
Chapter 13 Bankruptcy Eligibility
Chapter 13 bankruptcy can be very advantageous for individuals or small business owners who are becoming inundated with debt but have some discretionary income and want to protect valuable assets. There are some important criteria must be met in order to qualify for Chapter 13 bankruptcy:
- Only individuals and small business owners may file for Chapter 13 bankruptcy. Corporations and partnerships do not qualify for Chapter 13.
- Only those with a certain amount of debt will qualify for Chapter 13 bankruptcy. In Maryland, only those with unsecured debts (e.g. medical bills, personal loans, credit card debt) of less than $394,725 and secured debts (e.g. mortgages, auto loans) of less than $1,184,200 may apply for protection under Chapter 13.
- Only individuals or small business owners who can show proof of steady income and can meet monthly payment obligations are eligible to file for Chapter 13 bankruptcy.
Chapter 13 Loan Modifications and Dismissals
Repayment plans for a Chapter 13 bankruptcy are typically 36-60 months. Although a debtor may have a stable job at the time of filing, a lot can change in 3-5 years’ time, including job status. In an uncertain economy, it is not unusual for companies to tighten their belts and furlough or lay off employees. Ultimately, it is best to be prepared for the unexpected.
If you should happen to lose your job before completing a Chapter 13 repayment plan, notify your bankruptcy attorney. Your attorney can file a motion to have your repayment plan altered. In what is known as a post-confirmation Chapter 13 modification, your attorney will ask that the bankruptcy courts consider your new circumstances and create a modified repayment plan that makes sense for your new economic situation. In some cases, the bankruptcy court may grant a repayment plan reduction or a loan term extension. In other cases, the court may grant only a temporary reduction, particularly if the job loss is deemed to be temporary. Here are some specific situations that can help an individual qualify for a Chapter 13 loan modification:
- Job loss or a reduction in income because of health reasons.
- Unforeseen increase in debts due to healthcare expenses.
- The need to remove a debt item that was paid following the approved bankruptcy petition.
- The filed claims exceed the estimates provided at the time of the original petition approval.
If you are not approved for a loan remodification, you may have other options. Your bankruptcy attorney may be able to have your Chapter 13 bankruptcy converted into a Chapter 7, thereby eliminating many of your debts (e.g. card debts, medical bills, etc.). Depending on your situation, your attorney may suggest getting the Chapter 13 case dismissed first and then filing for Chapter 7 bankruptcy at a later date.
Work With A Local Chapter 13 Attorney
Each person’s job status and financial situation is unique. By consulting with an experienced attorney, you will be better informed and able to evaluate all options. Our knowledgeable Baltimore bankruptcy attorneys will review your existing Chapter 13 bankruptcy plan and will outline different scenarios for you to consider. Contact Sirody & Associates for a consultation on job loss and bankruptcy.