What If You Lose Your Job During a Texas Chapter 13 Bankruptcy?

 Posted on August 14, 2025 in Bankruptcy

Losing a job is stressful under virtually any conditions, but losing your income while under a Chapter 13 repayment plan can leave you devastated. Chapter 13 bankruptcy does provide some flexibility regarding job loss. Texas bankruptcy law allows certain modifications to your Chapter 13 repayment plan, temporary relief, or, in some cases, a conversion to Chapter 7 bankruptcy.

You must act quickly following the loss of a job; creditors can potentially push to have the case dismissed in response to lapsed payments, and this is not the outcome you want. When you work closely with your Austin County, TX bankruptcy attorney, you can expect the best outcome possible.

Chapter 13 Bankruptcy is Also Known as the "Wage-Earner Plan"

Filing Chapter 13 bankruptcy requires that the filer have a reliable income. Chapter 13 is for individuals and sole proprietors of a business, but not corporations or partnerships. Income can come from wages, self-employment, Social Security, or rental properties, but it must be regular and stable.

The court will review income and expenses to confirm the payments for the plan are affordable while still paying for essential living expenses. The total amount of unsecured debt must be below $526,700, while the total amount of secured debt must be below $1,580,125. All state and federal tax returns must have been filed for the past four years.

Steps to Take Following a Job Loss

The loss of a job is usually unexpected and sudden. The individual’s attorney and bankruptcy trustee should be notified immediately. Transparency can help lay the necessary groundwork for plan adjustments. Never put off notifying the trustee and attorney in the hopes that another job can be found quickly. While that might happen, it might not, and it could look as if there was deliberate deception.

Options for Chapter 13 Bankruptcy Following a Job Loss

There are some options available for Chapter 13 bankruptcy after the loss of a job, including:

Modification of the Repayment Plan

The individual can request that the bankruptcy court modify the repayment plan to lower monthly payments to account for the reduced income. A termination notice, pay stubs, and other evidence will be required to support the modification request and document the altered financial situation. The court will review the request and may adjust the payments or extend the repayment plan's length.

Hardship Discharges for Chapter 13 Bankruptcy After a Job Loss

When the loss of a job results in a permanent inability to make payments, a hardship discharge may be a possibility. The inability to continue making plan payments must be beyond the control of the individual (a serious illness or disability), and it must be shown that the creditors have received at least as much as they would have in a Chapter 7 bankruptcy.  

Conversion to Chapter 7

If a job loss significantly reduces income, the individual may qualify for Chapter 7, provided they can pass the means test. Conversion risks losing assets that are not protected by exemptions, and another 341 meeting of creditors is likely to be required.

Dismissal of the Chapter 13 Case

The individual may have the option to voluntarily dismiss the Chapter 13 case, allowing him or her to refile or negotiate directly with creditors. An involuntary dismissal means the court dismisses the case, which ends the automatic stay and allows creditors to reinstate collection efforts.

Temporary Moratorium

In some instances, if the individual convinces the court that the job loss is temporary – i.e., he or she will have another job soon - the court may grant a temporary moratorium. This is a period of time, typically two to three months, during which no payments are due.  

Contact a Brazoria County, TX Bankruptcy Attorney

If your source of income suddenly vanishes, this does not mean your bankruptcy case has to collapse. When you have an experienced Brazoria, TX bankruptcy lawyer from The Fealy Law Firm, PC as your advocate, we will act quickly to shield you from dismissal and help you get back to financial recovery. We focus on helping good people get through hard financial times. Call 713-526-5220 to schedule your free consultation.