Having trouble making your Ch. 13 plan payments during Covid?

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If you were affected by the Covid-19 pandemic, and you were in a Ch. 13 plan that was confirmed prior to March 27, 2020, then you could be eligible to extend your Ch. 13 Bankruptcy to 7 years instead of the normal 5 years.
This is a decision that requires some deliberate consideration between you and your Bankruptcy attorney. Being in a Ch. 13 Bankruptcy is hard enough, and to have a plan that is 5 years long can seem like an eternity. To extend that time frame to 7 years might seem really daunting. Unfortunately, when we, as Bankruptcy attorneys, set up your plans, we generally try to keep your payments as low as possible to ensure successful payments. Because of that, there is generally not much fat baked into your plan payment that allows for it to be reduced in times of stress.
That means that a lot of people who can’t afford their payment over several months receive a motion to dismiss from the Ch. 13 Trustee’s office and their case is ultimately dismissed, which is very frustrating, especially if you have been diligent on your payments for several years.
Having said that, if your attorney reduced your car payment or you are paying a necessary creditor a fixed amount, having the option of lowering your payment, and getting caught up, by extending your plan by an extra 2 years is a great option worth considering.
So if you are in an existing Ch. 13 plan, and are wondering why your attorney has not reached out to you to offer this as an option, you need to remember that most Bankruptcy attorneys who file Ch. 13’s are receiving a flat fee set by the Court and without asking for additional fees from the Judge (which might get turned down), they do not have a financial incentive to make more work for themselves. It is for this reason that you need to be proactive and talk to your Bankruptcy attorney about this option. This option will require that you file a motion and have a hearing, as well as provide testimony (usually in the form of a written declaration) regarding how Covid-19 specifically affected you.
Another option to consider is converting your case to a Ch. 7. This can also have its drawbacks. The obvious advantage is that you are no longer required to make your monthly Ch. 13 plan payment. The downside is if you were taking advantage of any of the unique benefits of a Ch. 13 plan such as reducing the interest on a loan, or cramming down the principal balance on a car loan. If you convert your case to a Ch. 7, then those deals are off, and you will revert to whatever status you were with those creditors prior to the Bankruptcy filing. This can often catch debtors off guard who were under the impression that their car loan was nearly paid off, only to find out that the amounts that were reduced under the Ch. 13 have suddenly resurrected themselves.
Another option is to have your attorney reach out the Ch. 13 Trustee to see if there are options for some sort of negotiated deal, such as a balloon payment at the end of the Ch. 13 plan term. This can often be worked out for debtors who have shown a good track record of on time payments for several years, or who have equity in property that can be easily refinanced towards the end of the Ch. 13 Bankruptcy case. In the case of a balloon payment, there is a chance that a skeptical Ch. 13 Trustee could request an evidentiary hearing before the Judge to require you to show how you could afford a balloon payment. This is especially true if you are proposing a large amount to be paid at the end of the plan, so be prepared to show your work instead of skipping right to the answer, because nobody wants you to get to the end of the plan only to fail.
The most important thing is to be proactive and not let your plan get so delinquent that you risk your Bankruptcy being dismissed. You worked hard in that Ch. 13 plan. You deserve to get the most out of it.

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