If your Chapter 13 payments have become unaffordable, you have five realistic options: modify the plan, ask the trustee for a short-term payment suspension, request a hardship discharge, convert the case to Chapter 7, or voluntarily dismiss. Which one fits depends on why the payment is too high and whether your financial picture has genuinely changed since confirmation. The one thing you shouldn’t do is wait. Missed payments without a plan of action can get your case dismissed or converted on someone else’s terms, so the move that matters most is calling your attorney the moment you realize you can’t keep up.
Modify Your Plan
A formal plan modification is the usual first step when payments stop being sustainable. If your income has dropped, your expenses have risen, or something significant has changed since confirmation, the court can adjust how much you pay each month, how long the plan runs, and how much particular classes of creditors receive.1Office of the Law Revision Counsel. 11 U.S.C. 1329 – Modification of Plan After Confirmation
You, the trustee, or an unsecured creditor can request a modification any time after the plan is confirmed and before payments are complete. The two changes that actually bring the monthly number down are lowering the payment amount and stretching the plan out. If your plan runs three years and your income is below your state’s median, the court can extend it to as many as five years for cause, spreading the same total obligation across more months.2Office of the Law Revision Counsel. 11 U.S.C. 1322 – Contents of Plan A modification can also specifically account for new health insurance costs you’ve had to take on.1Office of the Law Revision Counsel. 11 U.S.C. 1329 – Modification of Plan After Confirmation
Your attorney files the motion with updated income documentation, current expense schedules, and evidence of the changed circumstances. Every creditor gets notice and a chance to object. The modified plan still has to satisfy the same legal tests the original did: priority debts paid in full, secured creditors adequately protected, and unsecured creditors receiving at least what they’d get in a Chapter 7 liquidation.1Office of the Law Revision Counsel. 11 U.S.C. 1329 – Modification of Plan After Confirmation Within those limits, a modification can meaningfully lower what you owe each month when your finances have truly worsened.
One boundary worth knowing: priority debts like child support, alimony, and past-due income taxes have to be paid in full over the life of the plan, and that doesn’t change with a modification.3Office of the Law Revision Counsel. 11 U.S. Code 507 – Priorities The flexibility is on the unsecured side.
Ask the Trustee for a Short Payment Suspension
Sometimes the problem isn’t that the plan is permanently unaffordable. You hit a medical bill, a temporary layoff, or a car repair that eats one month’s payment even though you can handle the plan long-term. Some Chapter 13 trustees will allow a short-term suspension of payments without requiring a formal modification, with the missed amounts folded into later payments or picked up in a later modification if needed.
This is informal and varies by district. Not every trustee offers it, and the ones who do set their own limits. The practical step is to call your attorney the moment you know a payment is going to miss, so they can reach the trustee’s office before you’re delinquent on the record. Waiting until a motion to dismiss has been filed makes every option harder.
Request a Hardship Discharge
If your situation has gotten so bad that no realistic modification will save the plan, a hardship discharge lets the court discharge certain debts even though you haven’t finished paying. It’s a last resort, and the bar is high.4Office of the Law Revision Counsel. 11 U.S.C. 1328 – Discharge
You have to show three things. First, that you can’t keep up with payments for reasons you shouldn’t fairly be blamed for: a permanent disability, a serious chronic illness, a long-term job loss with no realistic recovery. A temporary cash crunch doesn’t qualify. Second, that unsecured creditors have already received at least as much through the plan as they would have gotten in a Chapter 7 liquidation. Third, that modification isn’t a workable alternative.4Office of the Law Revision Counsel. 11 U.S.C. 1328 – Discharge
The relief is narrower than a full completion discharge. Priority debts like child support and past-due taxes survive. So do most debts that would be non-dischargeable in Chapter 7, including student loans, fraud-related debts, and obligations arising from willful injury to another person. Secured creditors keep their liens, so if you stop paying your mortgage or car loan after a hardship discharge, the creditor can still foreclose or repossess. What a hardship discharge mainly wipes out is remaining unsecured debt. That can be real relief, but it isn’t a clean slate.
Convert to Chapter 7
You have an absolute right to convert your Chapter 13 to a Chapter 7 at any time, and any agreement that purports to waive that right is unenforceable.5Office of the Law Revision Counsel. 11 U.S.C. 1307 – Conversion or Dismissal Conversion replaces the multi-year repayment plan with a liquidation. A Chapter 7 trustee sells your non-exempt assets to pay creditors, and most remaining unsecured debt is discharged. If you have little non-exempt property, this ends the bankruptcy faster and eliminates the monthly payment entirely.
The tradeoff is real. In Chapter 13 you keep your property and pay over time. In Chapter 7, non-exempt assets are sold. When you convert, the Chapter 7 estate generally consists of property you owned on the original filing date that you still have on the conversion date. Courts disagree about whether post-filing appreciation in value, like equity gained in a home, belongs to the Chapter 7 estate or stays with you. If you convert in bad faith, the estate expands to include everything you own at the time of conversion.6Office of the Law Revision Counsel. 11 U.S.C. 348 – Effect of Conversion
Conversion also brings back any secured debt defaults that weren’t fully cured under the Chapter 13 plan. If you were three months behind on your mortgage when you filed and hadn’t caught up through the plan before converting, that default returns in full.6Office of the Law Revision Counsel. 11 U.S.C. 348 – Effect of Conversion For anyone whose main reason for filing Chapter 13 was saving a house, conversion usually defeats the point.
Voluntarily Dismiss the Case
If nothing else works, you can ask the court to dismiss your Chapter 13 outright. As long as the case wasn’t previously converted from another chapter, dismissal is your right and the court must grant it.5Office of the Law Revision Counsel. 11 U.S.C. 1307 – Conversion or Dismissal
Dismissal ends the bankruptcy and lifts the automatic stay. Creditors can immediately resume wage garnishments, lawsuits, foreclosure, and repossession. You still owe every debt that hasn’t been paid off through the plan. Progress you made on arrears is credited, but outstanding balances remain yours. Some people dismiss intending to refile with a better plan, but the Bankruptcy Code restricts the automatic stay when you refile within a year of a dismissal, so the timing of any refile matters.
What Happens If You Just Stop Paying
Doing nothing is the worst option. When you miss payments, the trustee or a creditor can ask the court to dismiss your case or convert it to Chapter 7, depending on which outcome better serves creditors. The statute lists failing to make timely payments and defaulting on a confirmed plan among the specific grounds.5Office of the Law Revision Counsel. 11 U.S.C. 1307 – Conversion or Dismissal Falling behind on post-filing domestic support obligations is an independent ground for dismissal, even if every other plan payment is current.
If the court dismisses, the stay is gone and creditors pick up where they left off. If the court converts, a Chapter 7 trustee takes over to liquidate non-exempt assets, which is the opposite of what most Chapter 13 filers wanted. There will be a hearing before either happens, and you can appear and propose a fix. Walking in with a modification already drafted lands differently than walking in with an explanation. That’s the practical difference between cases that survive this moment and the ones that don’t.
Will the IRS Tax the Debt That Gets Discharged
Outside bankruptcy, cancelled debt generally counts as income. Debt discharged in a bankruptcy case is specifically excluded from gross income, so you don’t owe federal tax on it.7Office of the Law Revision Counsel. 26 U.S.C. 108 – Income From Discharge of Indebtedness That holds whether the discharge comes at the end of a completed plan, through a hardship discharge, or after conversion to Chapter 7.
The exclusion comes with a tradeoff. In exchange, the IRS requires you to reduce certain tax attributes, such as net operating loss carryovers, capital loss carryovers, and the basis in your property. You report that on Form 982.8Internal Revenue Service. About Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness For most individual filers the real-world impact is small, but mention it to your tax preparer the year the discharge happens.