My Chapter 13 Payments Are Too High: 5 Options to Consider

You may be wondering what to do when your Chapter 13 payment is too high to make every month.

A Chapter 13 bankruptcy case can help you get out of debt for a fraction of what you owe to your creditors. However, you must commit to a three to five-year bankruptcy plan.

Unfortunately, many things can happen over a five-year period, and there’s so much nuance around skipping Chapter 13 payments. What happens if you need to get out of a Chapter 13 case before you complete your bankruptcy plan?

In this article, we would like to present the following things to help you understand your options:

1. Read about your Chapter 13 options if you’re payment is too high
2. Take a debt relief comparison calculator to understand your other options
3. Read about the pros and cons of other debt relief options.

What Happens If I Cannot Afford My Chapter 13 Payments?

If you cannot afford your Chapter 13 payments, you have several options. 

1. Chapter 13 Dismissal

You can stop making your Chapter 13 payments. Chapter 13 is a voluntary bankruptcy case. The court cannot force you to remain in Chapter 13 if you do not want to be in a Chapter 13 case. However, if you stop paying your Chapter 13 payments, the court will dismiss your Chapter 13 case. 

If your Chapter 13 case receives a dismissal, your creditors can begin debt collection efforts again. These efforts include repossessions, foreclosures, wage garnishments, and debt-collection lawsuits. Your creditors must apply any payment they receive from the Chapter 13 trustee. However, you will continue to owe the remaining balances on the accounts.

All that to say, you may want to learn about voluntary dismissal and the pros and cons of voluntary Chapter 13 dismissal.

2. Requesting a Deferment 

If the reason you cannot pay your Chapter 13 payment is temporary, you may petition the court for a two to three-month deferment of payments. You must have a valid reason for deferring your payments for two to three months. 

This option only works if your Chapter 13 plan calculations allow for adding up to three months to the end of the plan without exceeding the maximum term for a Chapter 13 plan.

3. Lowering Chapter 13 Payments

If the decrease in your income is permanent, you might qualify for a reduction in Chapter 13 payments.

You would need to prove to the bankruptcy court that you did not intentionally reduce your income to avoid paying your debts.

You must also prove that the reduction in income is likely to continue throughout the remainder of your Chapter 13 plan.

4. Getting a Personal Loan

You may consider researching how to get a personal loan in a Chapter 13 bankruptcy.

That said, you may have to go through some hoops with the trustee and your attorney to get approval to get a loan while in a Chapter 13 bankruptcy.

If you’re considering this option, you may read our article covering Chapter 13 bankruptcy authorization to incur new debt.

5. Converting From Chapter 13 to Chapter 7

A Chapter 13 bankruptcy is often much more expensive than a Chapter 7 bankruptcy.

If your income decreases enough, you may qualify for a bankruptcy discharge under Chapter 7. Individuals who file under Chapter 7 must meet strict income restrictions. If you become disabled or incur a permanent reduction in income, then you may be able to convert to Chapter 7.

If you can convert to Chapter 7, you could get rid of your remaining unsecured debts without any further payments. A Chapter 7 case can receive a discharge and be closed out within four to six months.

However, there are some very important matters to consider before you convert from Chapter 13 to Chapter 7. 

First, you may want to know if you qualify for Chapter 7 bankruptcy. Second, you may also want to understand the pros and cons of converting a Chapter 13 to Chapter 7 bankruptcy.

We developed the debt relief calculator below to help estimate Chapter 7 qualification.

Do you have nonexempt equity in assets?

Homestead Bankruptcy exemptions protect a certain amount of equity in your property. In a Chapter 13 case, nonexempt equity results in a higher bankruptcy plan payment. However, in a Chapter 7 case, nonexempt equity could result in a bankruptcy auction. You could lose that piece of property in a Chapter 7 case.

Mortgages and Car Loans

If your mortgage payments are not up to date, you will face foreclosure if you convert to Chapter 7. Likewise, the lender for your car loan may require you to catch up on the payments immediately in a Chapter 7 case. Otherwise, you may have to surrender the vehicle. You must carefully review how much you owe and decide if you are willing to give up your home or car in Chapter 7, if necessary.

Priority Unsecured Debts

Some debts become due and payable in full when your Chapter 7 case is closed. For example, income taxes or domestic support obligations. Therefore, you could face wage garnishments and other collection efforts if you have not paid those debts in full through the Chapter 13 plan before converting to Chapter 7. 

If you do not convert to Chapter 7 from Chapter 13, you may qualify to file a new bankruptcy under Chapter 7 after your Chapter 13 case closes. However, it is less expensive to convert Chapter 13 to Chapter 7 than it is to file a new bankruptcy case.

What Are My Other Options To Resolve The Debt Post Dismissal?

Before you decide to dismiss your Chapter 13 calculator, you should consider your options because creditors may start to pursue the debt soon after Chapter 13 has been dismissed. What the calculator does:

1. Compares and contrasts the following options: Chapter 7, Chapter 13, Debt Settlement, and Debt Management.
2. Estimates all-in costs and fees of each option
3. Provides options for those different debt relief options
4. Provides insights and analysis of some of the key options

What Debts Can I Get Rid of In Chapter 13?

Unsecured debts are not secured by collateral, such as a mortgage or a title loan. Unsecured creditors include personal loans, credit card bills, medical debts, judgments, and old utility or rent payments. Student loans are also unsecured debts, but you cannot get rid of these debts in bankruptcy. 

Unsecured creditors receive a percentage of the amount owed through the Chapter 13 plan. When you complete your Chapter 13 plan, the court discharges (forgives) the remaining debt you owe to your creditors.

Priority unsecured debts are paid in full through your Chapter 13 plan. Priority unsecured debts include most income taxes and other debts owed to the government, administrative costs, and back domestic support payments (child support and alimony payments).

Secured creditors hold a lien on collateral, such as your mortgage company or your car loan company. The court addresses secured debts individually through the Chapter 13 repayment plan. For example, if you want to keep your home, you must continue paying your normal mortgage payments. It’s important to note you can catch up on the past due mortgage payments through your bankruptcy plan. 

If you meet certain requirements, you might be able to decrease the amount owed on your car loan as well as lower the interest rate. A Chapter 13 plan accounts for most car loans, so you do not owe any money on your vehicle when you complete the Chapter 13 plan.

Debt Relief Options if My Chapter 13 Case is Dismissed

If your Chapter 13 case is dismissed, you may have non-bankruptcy alternatives for debt relief. Debt settlement, debt consolidation loans, and debt management are options you might want to consider after a Chapter 13 dismissal.

Debt Settlement

A Debt settlement program involves negotiating with your creditors to accept less than the amount owed on the account to satisfy the debt. There are some considerations. For example, the amount forgiven through debt settlement can be considered income for tax purposes. Debt settlement could increase your tax liability. Also, debt settlement does not require creditors to negotiate a debt. Furthermore, you need access to sufficient amounts to pay lump sums to your creditors to settle the debts.

Debt Consolidation Loans

You may be eligible for a debt consolidation loan. Through debt consolidation, you combine your debts into one monthly payment. You want to make sure that the amount of your monthly payment is manageable. Otherwise, consolidating your debts is not practical. 

Also, most lenders require collateral for debt consolidation loans, so you could be risking your home or other property if you are not able to make the loan payments. Interest rates may also be higher for a debt consolidation loan.

Debt Management 

Through careful debt management, you may be able to repay your debts without filing bankruptcy, taking out a new loan, or settling debts. There are several programs and resources that give individuals the tools and information to learn how to manage their debt effectively. 

Debt Payoff Planning

Ascend provides consumers with information and tools to help them learn how to manage their finances to pay off their debt.

Please feel free to contact Ascend if you have questions or want additional information. You can contact us online or call or text us at (408) 809-6573 to speak with someone about debt relief options.