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Modifying or Discharging Chapter 13 Repayment Plans

Filing for bankruptcy can relieve some of the burden if you find yourself in a severe financial crisis. While Chapter 7 filings provide faster relief, Chapter 13 filings give debtors a chance to pay their debt through a repayment agreement without liquidating their assets. If you are considering filing for Chapter 13 bankruptcy, you may be wondering what will happen if circumstances change and you are no longer able to make the agreed-upon monthly payments.

Modifying Payments

Filing for Chapter 13 bankruptcy restructures your debt to make it more manageable. A debtor who files Chapter 13 must submit a plan that outlines how you will make past due payments to creditors while keeping up with current payments over the span of three to five years.

In the Chapter 13 bankruptcy process, debtors can maintain ownership of their property and assets so long as they are able to make monthly payments on their debt and avoid incurring new debt. The amount that will be repaid is determined by a number of factors including the debtor’s disposable income available, which is based on a typical monthly budget for the debtor’s household.

Once a debtor’s repayment agreement is approved by the court, it is up to the debtor to keep the court assigned trustee administering the case up-to-date on any changes to his or her financial situation. If a debtor’s financial situation improves, they may be required to make larger monthly payments as the creditors are entitles to all the disposable income earned by the debtor. Conversely, temporary setbacks such as unemployment may be grounds for lowering the monthly payments. The first discussion concerning changes to the household budget should be with the debtor’s attorney.

If a debtor wishes to pay off their plan early, they must notify their creditors and seek court approval. Typically, requests to pay off a plan early will not be granted unless the debtor is able to pay off 100 percent of the debt they have incurred.

Hardship Discharge

Unfortunately, filing for bankruptcy does not make one immune to further financial hardship. If a debtor suffers a financial setback, and their payment plan pays less than 100 percent of what is owed, they may request a hardship discharge from the court which would absolve their debts early.

Hardship discharges may be granted if circumstances beyond the debtor’s control, such as severe illness, inhibit their ability to make the agreed-upon payments. The debtor must show the court that their circumstances are unlikely to improve, and that modifying their payment is impractical because he or she lacks disposable income.

Our Committed St. Paul Bankruptcy Attorneys Can Help

At Martin and Hedervare PLLC, our knowledgeable Minnesota bankruptcy lawyers can help guide you back to financial solvency. If you live in the Twin Cities, Minneapolis, and St. Paul communities, call us today at (651) 383-4725 or contact us online to schedule a consultation.

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