A chapter 13 debtor (person filing for bankruptcy) at some point may no longer be able to make their monthly trustee payments due to various factors, such as a reduction in income, higher expenses, etc.
The bankruptcy code permits a debtor to file a modified plan based on a number of circumstances. However, the amount of the monthly payment may not be permitted to change.
A portion of the monthly trustee payment may include funds that will be paid to various creditors, such as payments to the mortgage company for pre-filing mortgage arrears. A portion of the trustee payment may be paid to an auto finance company for auto arrears. There may also be disbursements to unsecured creditors, (ie. credit card companies), that are paid pro-rata.
If a debtor is no longer able to continue paying the same amount to the trustee, typically he will not be able to reduce the payment by paying less to the mortgage company if he wishes to keep the house. He may be able to eliminate the mortgage payment if he decides to surrender the house. This same analysis applies to payments to the finance company for a vehicle.
A debtor may possibly reduce their monthly payment by extending the number of months of the plan to a 60 month plan, which will allow for a reduced monthly payment by paying the funds over a longer time period. Please note that this may not be possible.
If no trustee funds are to be paid to unsecured creditors, under the original plan, then it is likely that no payment will be required to be paid to unsecured creditors under the modified plan in the event that the debtor’s income is reduced. It is also possible to modify the plan to reduce or eliminate the amount of funds that will be paid to the unsecured creditors under the modified plan. However, if the amount of funds paid to the unsecured creditors is a result of substantial assets at the time of the bankruptcy filing, a modified plan will not permit the debtor to reduce the amount that is required to be paid under the original plan.
Depending on the judge and the trustee administering the case, a plan may not be modified to less than a 60 month plan if the debtor’s household’s income was more than the average NJ household’s income of the same number at the time of the initial bankruptcy filing.
Robert Manchel, NJ bankruptcy lawyer, may be contacted at (866) 503-5655 to answer your bankruptcy questions.