You file for Chapter 13 bankruptcy. You still have a job, so you plan to use Chapter 13 to pay back your debt over five years. The monthly payments are $1,500. You can just make that work with all of your other bills and expenses. It’s tough, but you’re dedicated.
Then you lose your job. With no income, you know you can make it about one month before you drain your savings and have nothing left. What should you do now?
Typically, you have a few options. You may be able to get a temporary deferment. For instance, you may be given three months to find a new job without penalty. You can then start making the payments again. This is your best option if you know you can get another job, but that is not always as easy as it sounds.
If you cannot find another job soon enough to continue your payments, another option may be turning the Chapter 13 case into a Chapter 7. This could cause you to lose some assets that you retained under Chapter 13. Chapter 7 requires that you liquidate your assets that do not qualify for exemptions. Those are used to pay off your lenders.
The benefit of changing the type of filing is that Chapter 7 eliminates your debt entirely. You never have monthly payments. It really is a fresh start — getting rid of debt while your job search continues.
Make sure you fully understand all of the legal options that you have for bankruptcy, especially when your circumstances change significantly due to something outside of your control.
Source: Bankrate, “3 approaches to bankruptcy after job loss,” Justin Harelik, accessed May 15, 2018