Chapter 13 plans require a debtor make payments to a trustee each month for thirty-six to sixty months. These funds are then paid to the creditors as described in the plan. Plan payments are calculated by adding together secured claims paid in the plan, priority claims, and the amount of unsecured claims the debtor must pay, based upon their disposable income.
Sometimes a debtor’s income drops during the case. A change in the debtor’s income can affect the Chapter 13 plan in several ways. This type of change may make it impossible for the debtor to continue to make payments according to the payment schedule. There are several ways to address a change in debtor’s income but which is the best choice depends on whether the change in income is temporary and how much their income dropped.
When a debtor’s income drops temporarily then they may fall behind on their payments but have an opportunity to get caught up before the case is affected adversely. If the debtor falls behind on payments then the trustee may file a motion to dismiss the case. These can be resolved in several ways. First, the debtor can file a plan modification taking the missed payments and spreading them out over the remaining months. If the decrease is permanent then this would also be a good opportunity to drop the plan payment if possible. Second, the trustee may offer to enter into an interlocutory order with the debtor which allows him to cure the missed payments over a shorter amount of time. If the debtor realizes that his income will drop temporarily then he may be able to file a plan medication that temporarily decreases the plan payment so that he can stay current under the terms of the confirmed plan. Third, if the decrease in income is permanent then the debtor may be able to convert the case to Chapter 7 so that he can get out of bankruptcy quickly with no additional payments to the trustee.