Job Loss During Chapter 13 Bankruptcy? You Still Have Options

January 12th, 2010 by Reed Allmand

One of the biggest fears of debtors filing Chapter 13 bankruptcy is that they will lose their job during the 3 to 5 year repayment plan.  Fortunately, debtors who lose their job during a Chapter 13 bankruptcy still have options:

1. Dismiss the Chapter 13 bankruptcy case. Most debtors have the power to voluntarily dismiss their Chapter 13 bankruptcy case at any point and deal with their creditors directly.  For example, a debtor might decide to dismiss their case and negotiate directly with the mortgage lender and credit card lenders to negotiate a payment plan outside of bankruptcy. However, negotiating with creditors outside of bankruptcy can be overwhelming not to mention the possibility that your negotiation efforts will fail. Remember, once you dismiss you bankruptcy case creditors have the right to continue their collections activity against you.
2. Modify your Chapter 13 bankruptcy payment plan. Work with your bankruptcy attorney to present the case for modifying your Chapter 13 bankruptcy repayment plan and you might be able to reduce your payments.  This may be especially helpful if you still have some income coming into the household despite you employment status. You may even be able to defer payments for a set amount of time, giving you more time to find a new job.
3. Convert you Chapter 13 bankruptcy into a Chapter 7 bankruptcy. If you job loss takes your household’s income level low enough you may be able to convert your case to a Chapter 7 bankruptcy and discharge you unsecured debts.  However, you would still need to make payments on your secured debts if you wanted to keep the property attached to them such as a house or car. Speak with your bankruptcy attorney to find out if converting to Chapter 7 bankruptcy will work for your circumstances.