The Short Answer
Losing your job during a Chapter 13 bankruptcy does not automatically lower your plan payment — you have to take action. Whether your payment can be reduced depends on how your plan is structured, specifically how much of your monthly payment goes toward secured debts like your mortgage or car loans versus unsecured debts like credit cards. If most of your payment is locked into secured obligations, there may be little room to reduce it without surrendering collateral. Contact your bankruptcy attorney immediately if your income drops — waiting too long can result in your case being dismissed.
Almost all Chapter 13 bankruptcy cases are set for a period of anywhere from 36 to 60 months. As you can imagine, a lot change in a person’s life during a three to five-year time frame, particularly in a somewhat unstable job market. Although a person may have a well-paying, stable job at the time their Chapter 13 bankruptcy case is filed, they may lose their job a year or two later while still in their bankruptcy.
If you lose your job while you are in your Chapter 13 bankruptcy and are no longer able to afford your Chapter 13 payments, you will need to contact your attorney immediately so that he or she can take the necessary steps to try to reduce your plan payment. It is important to know, however, that just because you lose your job, your payments will not automatically decrease.
For example, if you are only paying 2% back to your unsecured creditors (credit cards, medical bills, personal loans, etc.) and the rest of your plan payments are for your secured debts (mortgage, car loans, furniture, etc.) then the Trustee may not be able to lower your payment because she would not be receiving enough to make all of your secured debt payments every month. In other words, if by lowering your plan payment, the Trustee is not receiving enough money from you each month to pay all of your secured debts, then the Trustee will have to dismiss your case. The only option in a situation where most (or all) of your plan payment goes to your secured debts is to surrender one (or more) of your secured debts. For example, if you have three vehicles included in your plan payment, you may be able to reduce your plan payment enough for you to afford the plan payment by surrendering one of the vehicles.
Obviously, each situation is different when it comes to the plan payment and amount being paid to secured and unsecured creditors, so you will have to contact your bankruptcy attorney for specifics about your own situation. However, there is the possibility of at least attempting to lower your Chapter 13 plan payment if you lose your job while you are in bankruptcy.
Key Takeaways
- Losing your job during Chapter 13 does not automatically lower your plan payment — you must contact your attorney to formally request a modification.
- Whether a payment reduction is possible depends on how your plan splits payments between secured debts (mortgage, car loans) and unsecured debts (credit cards, medical bills).
- If your plan payment is mostly covering secured debts, the trustee cannot reduce it without leaving those creditors unpaid, which would force a dismissal.
- One practical option when secured debt payments are too high is surrendering a secured asset — such as an extra vehicle — to bring the plan payment down to an affordable level.
- NC Chapter 13 plans run 36 to 60 months, so income changes mid-plan are common and the system does have a process to address them — but it is not automatic.
- Acting quickly is critical — a missed payment or pattern of non-payment can prompt the trustee to move to dismiss your case before a modification is approved.
Attorney Insight
The mistake I see most often is people stopping their plan payments the moment they lose their job, assuming the bankruptcy system will automatically adjust — it won't. In North Carolina, the Chapter 13 trustees will move to dismiss your case if payments go delinquent, and by the time a client calls me in a panic, the dismissal motion is already on file. A plan modification has to be filed proactively, and the window to save the case gets very narrow very fast. If you lose your job, call your attorney before you miss a single payment — not after.
