So you’ve been making your monthly Chapter 13 payment and it hasn’t been easy. There isn’t a lot of wiggle room to begin with but some months have been better than others. Plus, you know you’re on track to save a lot of money by completing the Chapter 13 bankruptcy. Then life happens. It’s the loss of a job, unexpected medical situation or a variety of other reasons why you may not be able to afford your monthly Chapter 13 payment anymore. So what do you do?
When you initially file a Chapter 13 bankruptcy your Trustee and creditors get a copy of a proposed plan. This tells the creditors how they are classified in the plan and how much you are estimating that they will be paid for the duration of the bankruptcy. Both the bankruptcy Trustee and the creditors have the option of reviewing the plan and either accepting or objecting to the plan terms.
Once you file your bankruptcy, your attorney is required to mail a copy of your proposed Chapter 13 plan to all of your creditors within 5 days from the date the case is filed. This gives everyone who is listed in the plan a chance to review how they will receive payment and whether or not they agree with the plan. If they do not agree with the plan, they have the right to file an Objection with the court stating their reasoning. At the 341 Creditor?s hearing (roughly a month after the case is filed), the Trustee will review your plan and have your attorney make any necessary amendments, if he agrees to the plan at that point, he will recommend confirmation.
Confirmation sets your plan in stone and is essentially put in place for your protection. Once your plan is confirmed, there is no changing it unless a Motion and Order is filed with the court. This prevents an unsecured creditor from coming up years later stating that they do not agree with the proposed payment.
Once your case is filed with the U.S. Bankruptcy Court and the creditors are notified of the filing, your mortgage company may stop sending you the monthly statements for your house payment. This is a protective measure on their part. The mortgage company may be in violation of the federal bankruptcy automatic stay if they send a statement attempting to collect a payment on your mortgage after you have decided to surrender or give up your home in bankruptcy. This violation carries severe penalties against the mortgage company including fines, so they do their best to avoid this violation.
A few days after your bankruptcy is filed with the Court, a notice will be sent to the mortgage company and other creditors notifying them of your intention to retain or surrender your house and other secured items including automobiles and furniture. If you filed Chapter 13 bankruptcy the creditor will receive a copy of the Chapter 13 plan. If you are keeping your home they will usually resume sending monthly statements to you. However, in many cases the Chapter 13 bankruptcy Trustee will be paying the mortgage on your behalf so contact your attorney prior to sending any payments to the mortgage company.
If you filed Chapter 7 bankruptcy the secured creditors including the mortgage company will receive the Statement of Intention. Often this is sufficient notice for your mortgage company to resume sending you the monthly statements. In other cases the mortgage company may send a letter requesting that you and your attorney sign a notice requesting that statements be mailed to you, while other mortgage companies may wait until after your bankruptcy is discharged before sending statements. Regardless of whether you receive the monthly statement from your mortgage company, it is extremely important that you continue to make your monthly payment to the mortgage company if you wish to retain or keep your home after filing Chapter 7 bankruptcy. If you wish to keep your home but fail to make your monthly mortgage payments after filing bankruptcy, the mortgage company may file a request within the bankruptcy court to foreclose on your home. Should this occur, you would be required to pay the amount you are behind on your home plus additional cost incurred by the mortgage company.
After filing Chapter 13 bankruptcy, you should confirm with your attorney whether the monthly mortgage payment is to be paid by you or the Chapter 13 bankruptcy Trustee. Often the mortgage payment is included in your monthly Chapter 13 payment and disbursed to the mortgage company by the Chapter 13 Trustee. Regardless of how the monthly payments are made to the mortgage company, you are eligible to deduct interest paid on your loan if you itemize your deductions on your tax return, and the mortgage interest meets the requirements established by the Internal Revenue Service. The same holds true if the property insurance and taxes are escrowed in your mortgage payment or whether you pay them directly to your insurance agent and city and county tax collector. They should be eligible for deduction on your taxes.
The mortgage company should continue to send you the Form 1098 Mortgage Interest Statement which will list the mortgage interest, insurance premiums and real estate taxes paid to them for the tax year. This will only include taxes and insurance if they were escrowed in your monthly payment. If you do not receive Form 1098 by early February following the tax year, you should contact the mortgage company and request they send the form to you. The information on Form 1098 is the same information the mortgage company provides to the Internal Revenue Service regarding your loan.
Most Chapter 13 bankruptcy cases are set to last for 36 to 60 months (3 to 5 years). During those years, you may experience a change in circumstances that put you in a position where you need to request for your plan payment to be lowered. The purpose of this blog post is to discuss the necessary steps to having your Chapter 13 plan payment reduced. Be sure to read everything carefully and contact our office if you have any additional questions.
When Can I Request For My Plan Payment To Be Lowered?
Receiving paychecks that are just slightly lower than when you filed the bankruptcy (for example, $50 or $100 per month) is generally not sufficient enough to get the court to lower your Chapter 13 payments. The Court is looking for a substantial change in circumstances. This could be a job loss, reduction in hours, medical issues, etc. If your circumstances have changed to the point where your income will not be what it was when you filed, follow our steps to requesting a review and/or modification of your plan payment.
Five Steps To Requesting A Reduction In A Chapter 13 Plan Payment:
Step 1: Email our office with documentation of all household income from the last 60 days. Your email should also include a completed Schedules I and J (click the blue link to get the necessary documents) and an explanation of what has changed and why you need a reduction in your plan payment.
Step 2: Give us a few days to review the information provided. We will contact you after we have reviewed the information and will let you know what we think we could request for your plan payment to be. If you agree with the request, we will prepare a motion to file with the bankruptcy Court.
Step 3: After the motion is filed with the Court, a hearing date will be set. You need to plan to attend the hearing.
Step 4: Before the hearing, you will receive a packet of information from the Trustee’s office. They will be asking you to fill out a budget and submit your last 60 days of income. The budget you provide to them needs to match the one we sent to you that you agreed on prior to the motion being filed.
Step 5: We will attend the hearing with you and if all goes as planned, your request for your plan payment to be lowered will be approved.
A few FYIs:
Not everyone qualifies for a reduction in plan payment. Everyone’s circumstances are different. If you are in a Chapter 13 and your entire plan payment is going to house, car, taxes, and/or other secured or priority debts, then your plan payment cannot be lowered without you being willing to surrender some of your property. In other words, there may be certain debts that the Court has to be able to pay in your case if you want to keep everything.
If you have a temporary change in circumstances (for example, you will be out of work for four weeks due to medical procedures), contact the Trustee’s office in writing and let them know what is going on, and ask if there is any way to have the payments reduced or stopped for one month.