Can A Chapter 13 Bankruptcy Plan Be Amended

Individuals entering a Chapter 13 bankruptcy generally are committing to make payments out of their disposable income for a three to five year period, and as they frequently point out to their bankruptcy lawyers a lot can change in this period of time. They could lose their job, they could have medical problems or give birth to additional children, or they could get divorced and have to support two households instead of one.

If such traumatic events occur many debtors will be unable to make their Chapter 13 plan payments, and as a bankruptcy lawyer I can see why they become nervous about making this long term commitment.
The law however offers some relief in these situations. A Chapter 13 bankruptcy plan can be amended after the court confirms the plan, if a substantial change of financial circumstances has occurred. The debtor may petition the court to amend the plan, and in many cases the court will grant lower payments. Or if circumstances grow so bleak that the debtor can no longer afford to make any payments, he or she can convert the Chapter 13 bankruptcy to a Chapter 7 bankruptcy.

Unfortunately, when the payments go down it may become impossible to meet some of the debtor’s goals under the plan. In many cases the reason for choosing a Chapter 13 over a Chapter 7 is because the Chapter 13 allows a homeowner to stop a foreclosure by paying back the mortgage arrearage over a five year period. This requires the plan to pay back the entire amount of the shortage though, and while an individual will still receive his discharge after amending the plan, if there is not enough money remaining to pay-off the mortgage delinquency the foreclosure may proceed.

A similar situation can occur when the debtor was counting on paying off non-dischargeable tax debts. A Chapter 13 must pay off 100% of the non dischargeable portion of the tax liability, and while a person may be able to obtain a Chapter 7 discharge after a drop in income, if he converts he will still have to deal with the IRS after the bankruptcy is finished.