4 limits on modifying bankruptcy

Dear Bankruptcy Adviser,
My husband and I have filed for bankruptcy. When the original paperwork was done, my husband was working mega-overtime, plus his pay will be cut in July. We just barely have enough for our bills and Chapter 13 payments. Can our payment schedule be reworked? We’re even more stressed out than before the bankruptcy!
— Diane

Dear Diane,
I assume you filed your case on your own. Otherwise, you would have spoken to your attorney about your change in circumstances. If so, I am impressed that the judge signed off on your case. I rarely see individuals file successful Chapter 13 cases without attorney assistance. Filing without an attorney is legal to do, but Chapter 13s are much more complicated than the more common Chapter 7.

However, you have options, and one of them may be to have your Chapter 13 plan payment reduced. This can only be done with court approval, so you will need to file the proper paperwork, called “a motion to modify plan payments,” with the court and have your new plan reviewed.

There are a couple of issues to consider before preparing a motion to change the Chapter 13 plan. These issues could make it impossible to change your plan payment because some of the debts listed in your plan might need to be paid in full.

There are other issues to consider, such as possible delinquent child support or alimony payments, criminal fines or other debts deemed to be nondischargeable. However, these are the most common issues you need to consider before trying to lower your plan payment.

1. Are you paying any unsecured creditors?

You might be paying some of your unsecured creditors — credit card companies, lenders of personal loans, etc. — through the bankruptcy. This means you are paying a percentage of those debts through your plan. That percentage can be from 1 percent to 100 percent. If you are paying more than 1 percent, it is likely you can reduce that percentage, thus paying those creditors less but still keeping you inside bankruptcy protection.

2. Are you paying back mortgage arrearages?

If you filed the Chapter 13 to catch up on delinquent mortgage payments, then that amount must be repaid in full; otherwise, you could lose your house. Your plan payment cannot be reduced beyond the amount necessary to pay back those arrearages.

3. Are you paying back delinquent federal or state taxes?

This is a much more complicated issue, one not easy to discuss without knowing any specifics about your tax liability. If you are paying delinquent taxes through your plan, you might still be required to pay back the full amount of the tax liability.

4. Are you paying off a vehicle through the plan?

If you are paying off a vehicle through your plan, it could be impossible to lower the plan payment. You would need to surrender the vehicle to lower the payment.

The short answer is, yes, you can lower your payment, but you need to be sure that none of these issues apply before you file the motion to modify your plan.

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