In Chapter 13 bankruptcy debtors propose a plan to reorganize their debt. This plan states that the debtor will make a payment to a trustee for thirty-six to sixty months. The trustee takes this money and makes payments to the creditors as stated in the plan. The debtor must also prove that they can afford to make payments for the duration of the plan by providing income records and a budget. Obviously, a debtor cannot prove that they will have a job for five years, but they must not have reason to believe that their income will decrease during that time.
Life doesn’t always cooperate with a debtor’s best intentions though. During the pendency of a bankruptcy case lots of different things can happen that cause the debtor’s income to decrease. A debtor may lose their job, get sick and have unexpected expenses, or one of the filers in a joint case may die. When this happens the debtor has a couple of options. First, if the decrease in income is temporary then the debtor may be able to modify her plan to reduce the payments until she is able to increase her income. Second, if the decrease in income is permanent, then she may be able to reduce her payment permanently if there is enough income to continue in the Chapter 13 plan. Third, if the decrease is permanent and she is unable to continue in the Chapter 13 case, then the debtor may be able to convert the case to Chapter 7 and receive a discharge in a few months without additional payments.