If you are in the Chapter 13 Bankruptcy process, you have a three-to-five-year reorganization payment plan. This plan will allow for one monthly payment to wrap up most types of debt and will provide you with automatic court protection from your creditors. There are a lot of reasons why a Chapter 13 might be the best choice for a person. However, many people who file for Chapter 13 Bankruptcy do so either because they don’t qualify for a Chapter 7 Bankruptcy or because they want to keep their house from being foreclosed upon and their car from being repossessed.
The Chapter 13 Bankruptcy is sometimes called the wage earner’s plan because it is only for people with a regular income that will allow them to make steady payments. The payments are made to a court-appointed trustee, who then distributes the money to your creditors in a predetermined system of priorities. At the end of your scheduled payments, the remaining balances on unsecured debts such as credit cards, deficiency claims, eviction balances, and medical bells will be discharged.
Because all of your financial details are completely transparent throughout the process and because the payment plan is supposed to represent what the law says you have the ability to pay economically, it would seem obvious that by the very definition of the process, you will be able to afford your payments. Unfortunately, sometimes unexpected life circumstances arise, and a payment is missed.
What happens if you miss a payment in Chapter 13? The simple answer is – it depends. According to the United States Courts, the consequences are dire indeed;
“ …if the debtor fails to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under chapter 7 of the Bankruptcy Code. 11 U.S.C. § 1307(c).”
However, there is hope in the word may. Yes, your trustee may file a Motion to Dismiss through Material Default, which could lead to your case being dismissed, and which in turn ends your hopes for a discharge, but he or she doesn’t have to. Whatever happens, you must contact your bankruptcy attorney, who will contact your trustee. The attorneys at Sawin & Shea have had many dealings with each trustee, so we will be able to explain exactly what you can expect every step along the way.
Most trustees will not file a Motion to Dismiss after only one missed payment as long as there is clear communication and as long as you can catch up on your missed payment.
If you know ahead of time that a change in your circumstances means you will be unable to make the agreed-upon payments and it’s not just a one-time problem, contact your bankruptcy attorney. Your trustee may be able to work out a modified repayment plan that involves lower monthly payments. There is no guarantee that this is possible, however, because some of the amounts you pay each month are mandatory and can’t be reduced.
If your income has been reduced and you now meet the means test and are eligible to file for Chapter 7 Bankruptcy, it may be possible to have your bankruptcy converted. Your attorney can advise you of the pros and cons of conversion in your particular case, so do not hesitate to contact them if you find yourself in a situation where you cannot afford to make the Trustee payment.
The court will schedule a hearing. At this hearing, the judge will expect an explanation from you, and will then decide whether to dismiss your bankruptcy case or to attempt another solution. It is much better if you can resolve the Motion before you see the judge, so always be proactive and talk with your attorney regarding potential pre-hearing solutions.
In some circumstances, if you can prove to the judge that your missed payment(s) was an anomaly and that you can cure your default (make up the amount owed) while also making your regular monthly payments, you will likely be granted the additional time you need.
In some rare cases, it may be possible to apply for a hardship discharge. This would apply if you are not able to modify your plan but are not able to make your payments due to circumstances beyond your control. An early discharge is only possible if you have already paid your creditors what you would have paid them if you had been in a liquidation bankruptcy under Chapter 7.
- Catching up on payments and preventing the trustee from filing a Motion to Dismiss
- Modifying your payment plan
- Converting your Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy
- Convincing the judge that you can catch up on payments and that the lapse happened because of unforeseen circumstances beyond your control
- Applying for an early discharge due to hardship
In this case, your bankruptcy will be dismissed, but you may file for bankruptcy again. Again, it is important to discuss options with your attorney.
Needless to say, the least disruptive thing to do if you find yourself in difficulty is to consult an experienced bankruptcy attorney as soon as possible. Each bankruptcy case is different, and the array of solutions varies according to circumstances.
If you are an Indiana resident looking for an experienced bankruptcy attorney, contact the law office of Sawin & Shea, LLC. Our lawyers have years of experience assisting Indiana residents through the bankruptcy process. You can call our office at 317-759-1483, or you can schedule a free consultation by clicking here.