Chapter 13 Bankruptcy Outcomes

When seeking debt relief through Chapter 13 bankruptcy, the debtor intends to repay the debts through a structured payment schedule. However, there are some instances in which a change needs to be made after the bankruptcy petition has been filed.  If the repayment plan cannot be satisfied, there are four general outcomes when ending a Chapter 13 bankruptcy case.

Plan Modification

The bankruptcy court will always prefer to find a solution that allows the debts to be repaid. In the event a debtor cannot afford to repay the debts as originally outlined in the Chapter 13 plan, a plan modification may be approved by the court. A plan modification may include changes to the amount of time allotted for debt repayment or how much is required to be repaid. The court may lengthen the amount of time for full debt repayment, reduce the monthly payment requirement of the Chapter 13 plan or reduce the total amount owed on the debt.

Chapter 7 Conversion

The court may agree to covert the bankruptcy case from a Chapter 13 debt repayment plan into a Chapter 7 debt elimination case. In some cases, the bankruptcy court may require that some of the debtor’s assets be liquidated in order to satisfy the debt owed. However, it is important to note that certain assets are exempt from liquidation under bankruptcy exemption laws. A bankruptcy case that is converted to Chapter 7 bankruptcy case must prove that the debtor can no longer afford to make the payments as outlined in the original Chapter 13 plan.

Hardship Discharge

In the event of extreme financial hardship, the bankruptcy court may grant a hardship discharge of the Chapter 13 case. This happens when the debtor experiences an unavoidable financial hardship, through no fault of their own, during the Chapter 13 repayment plan.  For example, if a debtor is no longer able to repay their debts through the Chapter 13 plan due to an accident, illness or injury that prevents them from working or paying their debts.

Dismissal

A dismissal of a Chapter 13 case refers to the closing of a bankruptcy case either (a)  voluntarily requested by the debtor or (b) involuntarily ordered by the court. A debtor may request to have their case dismissed if they can repay their debts and no longer need the assistance of bankruptcy. A case may be dismissed by the court of the debtor fails to provide accurate information in the petition, fails to complete the bankruptcy filing process or commits an act of fraud.