What Happens when You Can’t Make Your Chapter 13 Payments?

Chapter 13 bankruptcy involves payments. It sets up a payment plan for you, and you are expected to adhere to the plan. However, what if something happens and you cannot make your payments?

Suspending Planned Payments

As a rule, if there is good cause, your lawyer can obtain an order that will suspend your Chapter 13 plan payments. Each bankruptcy district is unique from the rest, so your local district may or may not have the same rules for suspending payments. This is usually just for a period of several months, so you should only ask for the time you actually need. You may need another motion later in your payment plan.

Filing the Motion

Speak to your attorney if you think you will have problems making payments on your plan. It must be for a good reason, like being laid off from work, having surgery or going on maternity leave. These issues all affect the flow of income in your household. Having a “tight month” financially is not a recognized reason for suspending payments. Your attorney can file a motion with your legitimate reasons for payment suspension.

The bankruptcy trustee or your creditors can object to this motion being filed, according to Bankruptcy Law Network, but as a rule, as long as your attorney convinces the trustee that your problem is genuine, you should not have a problem getting your motion approved.

Always Keep Your Attorney in the Loop

As with any type of problems you experience with your bankruptcy, always tell your attorney what is going on right away, so that he or she can take the proper steps necessary to keep the case on the right track.

Dismissal of Your Bankruptcy Case

If you have fallen behind on your Chapter 13 payments without speaking to your lawyer and letting the courts know why, creditors or your trustee may request that the court dismiss your case for bankruptcy. You will still have options you may use to save the bankruptcy and obtain your discharge.

Getting Current on Payments

If you have had an emergency that caused you to fall behind, you can usually catch up after that emergency passes. If you get a motion to suspend payments, you are in a much better situation than if you simply miss payments and then try to make them up.

If you are at a point where dismissal is a possibility, your attorney can explain your unique circumstances to the court. Nolo.com states that more time can be requested to catch up on arrears. Many courts will give you more time or create a catch-up plan for you. You can avoid these trying times if you let your attorney know up-front when the problems begin, so that the court can be advised of the problem before you fall behind.

Modification of Chapter 13 Payments

Your fiscal emergency may not be able to be resolved within a few months, such as would be the case if you lost your job, for example. In a case like this, your attorney will ask the court for a modification and reduction of your plan payments. A new, affordable amount must be proposed and accepted. You will also need to prove why you cannot make the original, larger payments.

Hardship Discharges

If you cannot continue your Chapter 13 payments, you may receive a discharge for hardship. Your financial situation must be such that the court will analyze it and find that you qualify. This does not wipe out alimony or child support obligations.

Converting to Chapter 7

A Chapter 13 may be converted to a Chapter 7 if you lose your job or have other valid reasons for not being able to make your Chapter 13 payments. Your attorney will prove that you qualify for a Chapter 7 now, since you cannot afford Chapter 13. This will not help with any priority debts, or catch you up on mortgage arrears, but it should free up enough money that you can make the new payments.

For over 25 years Tyler, Bartl & Ramsdell, P.L.C. has helped thousands of individuals and businesses find firmer financial ground. Call today for a free consultation, (703) 549-5000.