Can I lose everything if I come up short on Chapter 13 payments?

Bankruptcy is not a walk in the park. It is possible for a person to file for the protections that are available under Chapter 7 or Chapter 13 of the bankruptcy code, but chances are you’ve never gone through it before. Mistakes can be made that delay the final discharge of your debts. And where there is complexity, there are questions for which it may be difficult to find clear answers.

One of the first questions that many people have about bankruptcy is which chapter should be used. Chapter 7 is often a faster means to the ends, but Chapter 13 is one that should be considered if you hope to prevent foreclosure on your home and avoid the possibility of a car repossession. 

While the time frame to discharge runs longer, it tends to offer more stability in the area of cash flow because it involves setting up a negotiated plan for repayment of debt. It also offers more flexibility if your circumstances happen to change. And these days, change is perhaps the only certainty in life.

What that means, as we explain on our Frequently Asked Questions page, is that if you fall behind on your payments because of a change of situation such as a job loss or a reduction in income for whatever reason, it doesn’t necessarily mean disaster. It may be possible to petition the court for a modification in your plan to accommodate the new reality. It often depends on the type of debt that’s involved.

Another option might be to convert your Chapter 13 filing to a Chapter 7 filing. It may be that you initially filed for Chapter 13 protection because you didn’t pass the “means test” required to allow filing for Chapter 7. But that may have changed because of the changes you’ve endured.

What’s important is to know your options so you can take rational action.

Source: FindLaw, “Chapter 13 vs. Chapter 7 Bankruptcy,” accessed Oct. 9, 2014