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Modifying a Chapter 13 bankruptcy plan

A previous Mississippi post discussed debtors' obligations under Chapter 13 bankruptcy. Once the bankruptcy court confirmed a debtor's repayment plan, they must follow the repayment for either three or five years. However, certain circumstances may warrant a modification of the initial plan.

When debtors are no longer able to afford the payments under their initial payment plan, they must file a motion with the bankruptcy court to modify Chapter 13 plan payments. Debtors must explain why they are requesting modification and provide proof of changed circumstances, such as unemployment, reduction in income, increased expenses or unexpected emergencies. The court may then modify the plan.

Another option may be to convert a Chapter 13 bankruptcy to a Chapter 7 bankruptcy, in which the debtor's assets will be sold to repay creditors. To qualify for Chapter 7, debtors must satisfy the means test that requires debtors to have relatively little disposable income with which to pay their bills.

A debtor may qualify for a hardship discharge if there are circumstances out of the debtor's control preventing them from completing the Chapter 13 plan and if the Chapter 13 plan cannot be converted to Chapter 7. Alternatively, debtors may request the court to dismiss their bankruptcy case, but they will still owe the debts plus any interest accumulated during the bankruptcy proceedings.

Debtors who do not qualify for a modification and who fail to make payments on their Chapter 13 plan may lead to their case being dismissed prior to the discharge of the debt. In addition, creditors may obtain relief from the automatic stay and resume collection activities against the debtor.

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