What happens if I miss a Chapter 13 Plan Payment? Your case can be dismissed! But don’t worry, that doesn’t happen immediately. We’re going to talk through the process when you miss a Chapter 13 payment so you can get back on track before it’s too late.
What’s the process if I miss a Chapter 13 payment?
In order to get a Chapter 13 discharge, you must complete your plan payments. That puts you in a bad position if you miss your Chapter 13 plan payments. Don’t worry though, there are normally ways that you can fix it. Before we get there though, let’s talk about the process.
First, it’s important to recognize that every Chapter 13 trustee handles missed payments differently. Additionally, every bankruptcy district handles the process slightly differently. This is not intended to be a substitute for contacting your Chapter 13 attorney. In fact, that should be your first call if you miss a payment. Instead, this is an overview of the general process that applies when you miss payments.
What is a Motion to Dismiss for Material Default?
If you miss payments, a Chapter 13 trustee can file a “Motion to Dismiss for Material Default.” If this motion is granted, your case would be dismissed. If your case is dismissed, you will not get a discharge. So you can see why you need to get ahead of this.
Most trustees will not file a Motion to Dismiss for one missed payment. So if you can catch up on that missed payment before your next payment is due, you should ordinarily be ok. If you get two months behind, many trustees will file the motion. If you get three months behind, almost all trustees will file the motion. This is not a license to miss payments. Every payment you miss makes the problem harder to solve. You need to be proactive and speak with your Chapter 13 attorney as soon as you know this will be an issue.
When a trustee files a Motion to Dismiss, the court schedules a hearing. If you do not resolve the issue with the trustee prior to the hearing, the bankruptcy judge will expect an explanation from you as to why you missed your payments. The judge would then decide if your case should be dismissed or whether another solution is appropriate.
If a Motion to Dismiss is filed in your case, it is always best to resolve the Motion ahead of time.
What do I do if I know I’m going to miss a payment?
Contact your lawyer immediately. In most cases, your lawyer will not be notified when you miss a payment. If you don’t call, your lawyer would have no way of knowing you’re having an issue. Many times people wait until the Motion to Dismiss is filed. This can be a problem because the further you get into your issue, the harder it is to fix.
If you are able to catch up on your payments, you should. If you cannot, be honest with your lawyer. Many times our clients tell us they can catch up when they cannot. We need to know these things. If you can’t catch up on the payments, we may have other solutions, but I need to know that.
What do I do if I missed a payment?
Contact your lawyer immediately. Don’t wait until it’s too late!
There are a number of ways that we can fix a missed Chapter 13 payment. Whether these options are available to you depends on a number of factors:
- Your specific trustee;
- Your specific bankruptcy district;
- How far behind are you?;
- What debts are being paid in the plan?;
- What type of plan do you have? (disposable income, equity buyback, cure and maintain, 100% etc.);
- How long was your plan payment? (i.e. are you over or under median income?)
The fact that there are so many factors emphasizes why calling your lawyer is so important. There are a number of different things to consider when coming up with a solution.
How can I fix my Chapter 13 if I missed a payment?
Here are some of the things we have done to solve the issue:
- Catch up on your payments: The easiest option in most cases is to simply catch up with your missed payments. This works best when the trustee hasn’t yet filed a Motion to Dismiss, but many trustees will withdraw the Motion even if you catch up after it’s filed. If the trustee files a motion though, you may only get one shot to repay. Many trustees will not withdraw the motion if you keep falling behind.
- Enter into a repayment agreement with the trustee: Some trustees will allow you to catch up on the missed payments over time. For example, you may enter into a 90 day repayment. The problem is that you have to make your current payments on top of the catch-up payments. This can be expensive and difficult for many people.
- Amend your plan: Amending your plan is one of the more common ways to deal with missed payments. By amending your plan, we can restructure the entire plan and make changes as needed. This allows you to catch up, but can also allow you to make other adjustments. For example, you can decide to surrender a house you were originally trying to save. This can make your payment more affordable.
- Request abatement: If you have a temporary hardship, you can request “abatement” of plan payments. This means that you are asking to not make plan payments temporarily. This only works if your plan is paying back unsecured creditors. We wouldn’t use this option in a case where your plan was only being used to repay mortgage arrears. In that case, you would want to amend your plan.
- Convert to Chapter 7: Sometimes we file a Chapter 13 because your income is too high. If something happens that causes you to lose income or causes your expenses to increase, you may be able to convert to Chapter 7 bankruptcy. This would fix your Chapter 13 plan payments because you wouldn’t need to make them!
- Dismiss and Refile: Sometimes the above solutions don’t work. In that case, it may be best to simply allow the Motion to Dismiss to be granted. The judge will dismiss your case, but this will allow you to potentially re-file a Chapter 13 when your financial situation improves. This may give your new Chapter 13 a chance at success.