Sometimes things don’t go smoothly for debtors who have filed chapter 13 bankruptcy in New York. Normally, a chapter 13 case will allow a debtor to put together a repayment plan, which will take three to five years to complete. Often, once it’s concluded, any remaining unsecured debts will be discharged. However, once a debtor hits bumps in the road, the question is how to salvage the plan and stay on track. Section 1329(a) of the Bankruptcy Code gives four ways a debtor, the trustee, or an unsecured creditor can ask the bankruptcy court to modify the repayment plan.
(1) Increase or reduce the amount of payments on claims of a particular class,
(2) Extend or reduce the amount of time for such payments,
(3) Alter the amount of the distribution to a creditor, or
(4) Reduce the amounts to be paid under the plan if the debtor purchases health insurance for himself or herself and any dependents. The debtor must demonstrate that the policy is “reasonable and necessary.” The debtor can’t upgrade a lapsed policy, and if the debtor is buying health insurance for the first time, the policy must not be more expensive than what people of similar incomes, expenses, ages, health statuses, and the same geographic area hold.
It’s possible that with the new health care law in effect, many chapter 13 debtors will need to purchase health insurance who had not already done so. On the bright side, “reasonable” policies should be cheaper thanks to the law.
Otherwise, debtors will usually encounter little difficulty changing the amount they pay to creditors or the amount of time the plan allows them to do so. Although, the Bankruptcy Code does not allow a plan to continue beyond five years regardless of the circumstances.
Unsecured creditors, whose claims are the least likely to be paid in full, are most likely to ask the bankruptcy court to modify the plan if they believe the debtor’s financial situation has improved. A modification under these circumstances is something to expect, but sometimes debtors who are fortunate to find better jobs will want to hasten the plan to exit bankruptcy quicker anyway.
Modifying a chapter 13 plan might be the best course of action for debtors, especially if they want to keep the automatic stay in place. Others might benefit from asking for a hardship discharge or converting their cases to chapter 7. Knowing which route to take is one reason to hire an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 bankruptcy lawyer Brooklyn NY Bruce Weiner for a free initial consultation.
