Between 2006 and 2017, there were nearly 13 million consumer bankruptcies filed. Of these, 68% were Chapter 7 filings, while 32% opted for Chapter 13.
Chapter 13 has certain advantages: if you have a lot of property that you don’t want to lose in a Chapter 7 liquidation bankruptcy, then it lets you repay your debts over a three- to five-year period. During that time, creditor collection actions are stopped, and, in many cases, you end up paying little to nothing on non-priority debts.
The downside is that Chapter 13 bankruptcies can be more difficult to complete. Compared to Chapter 7, which has a 97% success rate, only 33% of Chapter 13 filings receive a discharge. This happens primarily because the payments can be challenging to maintain over the years, especially if you lose your job or become disabled.
If you fail to maintain the payments outlined in the original repayment plan, then the bankruptcy trustee may file a motion to dismiss your case. If this happens, then you lose the protection of the automatic stay and your creditors can continue their collection efforts. What are your options then?
Catch up on missed payments
If your financial setback was only temporary, then you might be able to arrange with your trustee to catch up on the missed payments by a specific date. If they aren’t open to working with you (which rarely happens), then you can work with a New York bankruptcy attorney to file an opposition to the motion to dismiss. Once the court hears your side, it may grant you time to catch up on plan arrears.
Renegotiate the plan
If your financial situation has changed (for example, you’ve gotten divorced or lost your job and could only get a lower-paying one), then you can seek to renegotiate your plan. You will have to file a motion proposing a new payment amount based on your changed financial circumstances. Bear in mind that you won’t be able to reduce payments on priority debts like child support arrears and tax obligations.
Converting to Chapter 7
If the court grants the motion to dismiss your case and you know you won’t be able to sustain another multi-year repayment plan, then you have the option of converting to a Chapter 7 bankruptcy if your household income is equal to or lower than the median state income for a similarly-sized household. In New York, you can use state or federal exemptions to protect most, if not all, of your property, so ignore the old rumor that you “lose everything” in bankruptcy.
When you are having challenges with your Chapter 13 repayment plan, a New York bankruptcy attorney will recommend the best course of action based on your financial situation. If your case needs to be converted to Chapter 7, then legal guidance will help ensure that you maintain as much of your personal property as the law allows.
If you are considering filing for bankruptcy, then contact the law office of Jayson Lutzky. Mr. Lutzky offers free in-office initial consultations and can help determine if bankruptcy is the right option for you. Call 718-329-9500 to set up an appointment.