The answer to the question, what if something bad happens during a Chapter 13 Plan is – call your lawyer. Please notice, I did not say, call the Trustee. Even if you haven’t talked to your lawyer since your case confirmed, at least in the Western District of Oklahoma, your lawyer is still your lawyer until the case concludes, you fire him or the Court allows him to withdraw for some reason. The Trustee does not work for you, your lawyer does. Call your lawyer.
Now, for the rest of the story. Clients come to see me and are nervous about filing a five-year plan. What if something happens? Well, something will happen. It is called life. The problem with answering that question is that the answer is always going to be – that depends. The answer depends on exactly what happens, when it happens, what has or has not been paid in the Chapter 13, where you are in the plan, whether the case is confirmed or not. It just depends.
Losing a job in the last year of a plan is very different from losing one in the first year. Having a house burn down might change how hard you want to fight to save it. (Yes, I have had that happen to a Chapter 13 debtor.) The death of a spouse is just hard – all the way around, and being in a Bankruptcy at the time doesn’t make it easier. Totaling a car means having to get a new one. Divorce complicates a Chapter 13 in ways very few other things do. Regardless, you will have options; and only your lawyer can talk to you about them.
Still, there are some generalities. If you lose a job during a chapter 13, you will want to discuss with your lawyer whether your plan payment can be reduced, whether you should consider converting the case to a Chapter 7, whether you should consider seeking a loan modification on your mortgage, maybe you want to talk about whether or not you can sell the house. Maybe you should dismiss the chapter 13 with an eye towards refiling when you have found new employment. Maybe staying in with the smallest possible plan payment makes more sense. Maybe the best answer is some combination of the above.
Dealing with a Chapter 13 that has gotten into trouble is relatively easy when there is some flexibility in the plan. The worst cases are the ones where the Debtor was a year behind on his mortgage when the case was filed. The plan is all about saving the house. There is virtually nothing besides the house and the car getting paid in the plan, the plan payment was a real reach for the debtor before he lost his job, he is already at a full 60 months – and he loses his job. Well, you can’t extend that plan term. You can’t reduce the payment without giving up either the house or the car, because there is nothing else there. You can get the debtor a little bit of time to find a new job, but every plan payment he misses is going to increase the remaining payments – which were a stretch to begin with, before he lost his job. So, after three or four months the Debtor finds a new job that pays less than the old one, he is now three or four months behind on his plan payment. The remaining payments will have to go up to cover that, and he can’t do it. In that case, sometimes the best option is to dismiss and refile.
I want you to notice, though, that even with the facts above; there was still an option. Dismissing and refiling may not sound too fun after three or four years in a plan. The last thing you really want to do is start over, but at least in this case it means starting over with a much smaller mortgage arrearage than you had to deal with in the first place, and you get a whole new 60 months to cure it. It isn’t a great solution, but it can make the difference between saving a house and losing it.
So, if life hands you more than you can handle during your plan term. Call your lawyer. You will have options. They may not be wonderful, but you will have some. Oh, and don’t be surprised if your lawyer’s first suggestion is that you try to sit tight until you find a new job. You will always have more and better options employed than not.