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How Will Chapter 13 Bankruptcy Help Us if We Can’t Afford the Payment? – Michele

“Dear Steve,

We have equity in our home, more then what is owed in unsecured debt. We are considering filing Chapter 13 bankruptcy but can not aford the estimated trustee payment of $2700. If we file we will be unable to pay our monthly expenses and the trustee, combined are near $8700. The debt is 160,000 and the equity is 200,000. If we could use the equity to pay off the debt we would but we can’t get refinanced.

How is bankruptcy, Chapter 13 protecting us if we can’t afford the trustee payment and we could end up losing our home in the end.

Michele”

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The Answer

Dear Michele,

It doesn’t sound like it will help you then. You should not enter a Chapter 13 plan doomed for failure. It will be discharged and just be expensive and fruitless.

Frankly, it seems like some of the underlying factors here are going to have to change to lower your debt or living expenses. Rather than live in the house and try to overcome your debt you might just have to sell the house quickly and use your equity to pay off your debt. If you don’t then there is the possibility your creditors may sue you when you default on the debt you can’t afford and then they may go for a wage garnishment or a property lien or some combination of both.

There is no guaranty of being able to refinance but there is a guarantee of repayment of money borrowed under that law unless it is terminated by bankruptcy or the satisfaction of the debt.

Equity unable to be accessed is paper money, not real currency.

Big Hug!

How Will Chapter 13 Bankruptcy Help Us if We Cant Afford the Payment?   Michele
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Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Chelsearw

    debtor, just dismissed chapter 13, could not afford payment. its only been three days,
    their allready trying reposession my car? what can i do?

  • Annie

    Dear Steve,
    I found your website via looking for questions related to Trustee payments to high to pay, Like Michele we are in a Bankruptcy Chapter 13 where I just found out that our payment will go up even after a loss of income. When we first filed in Dec. 2010 I had already lost my job and was collecting unemployment. We had our home which unlike Michele had and has a negative equity of $168,000 dollars, on the first filling we wanted to keep our house and our mortgage was $3000 a month. I was hopeful to find a job but nothing came and still nothing has. I decided to go back to school and hopefully get a new job with a new career. After talking to our attorneys of our fears he advised us to let the first case dismiss and re-file to include the house as there was no equity in it to help out. In addition, I had a huge income and to help us out a bit, we waited six months so that unemployment and not my old income would be accounted for. So, from the first filing our payment was $1896 a month, plus we had the Mortgage of $3000 a month. Now with the second filing our payment went up to $2729.00 and we were lucky to find a rental $1495.00 a month. My husband’s combined income is 6038.00 net which includes his job and his 26 year Military retirement. I was collecting roughly $1700.00 a month from unemployment. With only a family of four, our incomes put us above the “Means Test” forcing us to file for 13. But our combined debt including the house now exceeds $500,000 dollars, including the old mortgage, credit cards, cars and unfortunately some taxes. We tried to do a Short Sale, but the bank denied it and proceeded to foreclose. It’s been hard for us to try to make the 2729.00 payment especially when our cars which we decided to keep now decide to break down on us and we have two kids in “public” but charter art schools and I am trying to pay for school little by little. We live in Salt Lake City, UT and I know the laws are different in each state. As of this month, my unemployment benefits have completely exhausted and instead of our payment of 2729.00 going down it has actually gone up to 4815.00! Apparently the trustee assumes my husband got a raise which he did not and has also been in a pay freeze for the past two years. In addition our original allowed expenses or “schedule j” were reduced without us knowing and is their additional basis for the payment going up. But my question is when a Trustee increases your payment and you simply cannot afford it, what options does the consumer have? Especially with a property which was given up and so much back debt? Unfortunately at this time if we can’t fight this new payment increase, we will have to let this BK dismiss as well because we can’t simply afford it. How do they expect for us to pay 4815.00 a month and still expense rent, (which will go up to 1890), food, gas, utilities, car expenses and basic living expenses on a $6038.00 net income? Your advice would be greatly appreciated!
    Sincerely Annie

  • Annie

    Dear Steve,
    I found your website via looking for questions related to Trustee payments to high to pay, Like Michele we are in a Bankruptcy Chapter 13 where I just found out that our payment will go up even after a loss of income. When we first filed in Dec. 2010 I had already lost my job and was collecting unemployment. We had our home which unlike Michele had and has a negative equity of $168,000 dollars, on the first filling we wanted to keep our house and our mortgage was $3000 a month. I was hopeful to find a job but nothing came and still nothing has. I decided to go back to school and hopefully get a new job with a new career. After talking to our attorneys of our fears he advised us to let the first case dismiss and re-file to include the house as there was no equity in it to help out. In addition, I had a huge income and to help us out a bit, we waited six months so that unemployment and not my old income would be accounted for. So, from the first filing our payment was $1896 a month, plus we had the Mortgage of $3000 a month. Now with the second filing our payment went up to $2729.00 and we were lucky to find a rental $1495.00 a month. My husband’s combined income is 6038.00 net which includes his job and his 26 year Military retirement. I was collecting roughly $1700.00 a month from unemployment. With only a family of four, our incomes put us above the “Means Test” forcing us to file for 13. But our combined debt including the house now exceeds $500,000 dollars, including the old mortgage, credit cards, cars and unfortunately some taxes. We tried to do a Short Sale, but the bank denied it and proceeded to foreclose. It’s been hard for us to try to make the 2729.00 payment especially when our cars which we decided to keep now decide to break down on us and we have two kids in “public” but charter art schools and I am trying to pay for school little by little. We live in Salt Lake City, UT and I know the laws are different in each state. As of this month, my unemployment benefits have completely exhausted and instead of our payment of 2729.00 going down it has actually gone up to 4815.00! Apparently the trustee assumes my husband got a raise which he did not and has also been in a pay freeze for the past two years. In addition our original allowed expenses or “schedule j” were reduced without us knowing and is their additional basis for the payment going up. But my question is when a Trustee increases your payment and you simply cannot afford it, what options does the consumer have? Especially with a property which was given up and so much back debt? Unfortunately at this time if we can’t fight this new payment increase, we will have to let this BK dismiss as well because we can’t simply afford it. How do they expect for us to pay 4815.00 a month and still expense rent, (which will go up to 1890), food, gas, utilities, car expenses and basic living expenses on a $6038.00 net income? Your advice would be greatly appreciated!
    Sincerely Annie

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