So you’ve been making your monthly Chapter 13 payment and it hasn’t been easy. There isn’t a lot of wiggle room to begin with but some months have been better than others. Plus, you know you’re on track to save a lot of money by completing the Chapter 13 bankruptcy. Then life happens. It’s the loss of a job, unexpected medical situation or a variety of other reasons why you may not be able to afford your monthly Chapter 13 payment anymore. So what do you do?
The most common course of action when your income has gone down or your expenses have gone up, beyond your control, is to request a reduction in your Chapter 13 plan payment. However, we can’t just simply ask for it to be lowered…we have to provide quite a bit of information. The Trustee’s office represents your creditors and they want to make sure they receive as much money as you can reasonably pay. Therefore, we need to provide them important information so we can have their support in front of the court to reduce your payments.
To help make this process as simple as possible we have broken down what needs to be done in six (6) different steps.
Step #1 – Determine If You Really Need A Plan Payment Reduction
When you ask the Chapter 13 Trustee’s office or the bankruptcy court to reduce your Chapter 13 plan payment they will look at your income and your expenses. If they see your expenses have gone down or, more commonly, your income has gone up they could actually increase your monthly payment instead of decreasing it. Therefore, closely examine your situation to determine whether requesting a reduction is what you want to do. Let’s say it is…what’s next?
Step #2 – Provide Your Last Ninety (90) Days Of Income Statements
Whether you are an employee who receives a paycheck or you run your own business and have profit and loss statements, we need statements for all of your different sources of income for the last 90 days for everyone in the household (even if your spouse did not file). The courts are going to look at this information (specifically the year to date income on paychecks) to see if your income has decreased, increased or stayed the same. We need to get this information so we can accurately reflect your income and ensure your income has not increased.
Step #3 – Fill Out New Schedules I & J
By using your income statements you will need to fill out Schedule I (income section) and Schedule J (expenses section) so we have a clear idea of what your regular monthly income and expenses are. This is an extremely important part of the request for a reduction. If you are saying you cannot afford your $500.00 per month payment but your budget shows you have $2,000 left over each month then, of course, we would have a problem reducing your plan payments. Since your car payment and usually your house payment would be included in your Chapter 13 plan payment you should not include it as an expense in Schedule J. Schedule J should just include your regular living expenses (food, gas, car insurance, etc.) and not your Chapter 13 payment or any other debt payments included in your Chapter 13 payment.
Step #4 – Provide A Copy Of Your Most Recently Filed Taxes
The court is going to look at what you made last year as well as what your different sources of income were by carefully reviewing last year’s taxes. Therefore, you need to provide us a copy of this information. If you don’t have a copy of your taxes you can always check out our blog post explaining how to get a tax transcript from the IRS.
We need a copy of both your federal taxes and your North Carolina taxes.
Step #5 – Provide A Written Explanation Of What Situation Led To You Needing A Reduced Payment
As your attorneys we can provide information to the Trustee’s office and Court explaining why you need a reduced payment. You should NOT send this directly to the Chapter 13 Trustee’s office. Instead, send us a brief explanation of what situation led you to needing a reduce payment.
Step #6 – Motion Filed Requesting Reduction In Plan Payments
A Motion to Modify the Chapter 13 Plan would need to be filed. After receiving the necessary information we would prepare this motion and file it on your behalf. There would be a court hearing and we would need to explain to the judge the necessity of the reduction. The judge would then decide whether the reduction is appropriate. Again, as long as we get all of the requested information we can let you know if we think there would be any issues having your payment reduced before filing a motion with the Court.
Other Important Information
Can’t Go Below 0.00%
There are times when no matter how difficult it is to make the payment we cannot have it reduced. If you are paying back 0.00% to your unsecured creditors we cannot pay back less than 0.00%. Therefore, your payment cannot go down at all. Instead, you would need to look to see if you qualify for a Chapter 7 bankruptcy instead. A Chapter 7 bankruptcy may be appropriate if you have lost your job or had a reduction in income but there could also be some negative consequences to filing the Chapter 7 bankruptcy. If you think this is something you are interested in then after getting us the above documentation let our office know you would like to convert to a Chapter 7 if possible and we can discuss the advantages and disadvantages of a conversion.
Liquidation Requirement
Finally, there is also something called a liquidation requirement within a Chapter 13 bankruptcy. If you had assets valued above what we could exempt or protect when you originally filed your bankruptcy, then that amount must be paid back over the course of your bankruptcy. Let’s look at an example.
If you had $10,000 worth of property we could not protect, then you are required to pay $10,000 back to your unsecured creditors over the course of your bankruptcy (it would be part of your monthly payment). If you cannot do that then the court will be unwilling to lower your payment. If you wanted your payments to be lower you could consider surrendering property and that may sway the court in lowering your payment.
Final Thoughts
It’s not uncommon for a client to need to request a reduction in their plan payments at some point in time within their bankruptcy. However, the court does not quickly or easily reduce payments. There needs to be a significant change in your circumstances for the court to agree to reduce your plan payments. If you follow the steps above you will allow us to best present your argument on why a payment reduction is necessary. As always, if you have additional questions don’t hesitate to let us know.
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