Dear Bankruptcy Adviser,
I just changed positions and had to take a pay cut. I am in a Chapter 13 bankruptcy and can't afford this month's court payment. Can I defer the payment?
You are smart to address the issue before missing a payment. Most Chapter 13 filers tend to be reactive. A proactive approach definitely is best.
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A Chapter 13 is a repayment of some or all of your debt over a three- to five-year period. For this column, I'm assuming you weren't able to file a Chapter 7 bankruptcy; therefore, you need to keep your Chapter 13 case active.
You may be able to modify or suspend a Chapter 13 plan payment, but this question is very case-specific, so I can't provide you with certainty for your exact situation. Before missing a payment completely, there are three obstacles you will need to address.
Obstacle 1: Are you paying a car loan or mortgage loan directly to the Chapter 13 trustee?
In some bankruptcy districts, you are required to include your mortgage payment and your vehicle loan payment in your Chapter 13 plan payment. It is one large consolidated payment.
In these cases, by missing the bankruptcy payment, you are missing a mortgage and/or car payment. Your missed payment could trigger the trustee to file a motion dismissing your Chapter 13 bankruptcy case, essentially taking you out of bankruptcy protection and putting you back in the creditor's den. You will be left scrambling to oppose the trustee's motion and to get caught up on the delinquent payment before the creditors come calling.
Obstacle 2: Can you afford the current payment?
You mention you got a pay cut but were not terminated. Since you did not miss a monthly check, you need to immediately figure out how to budget with that lower income. When my clients tell me they can't make a payment, I try to get them to make a partial payment and get caught up in the subsequent month or two. But this can be dangerous.
Falling behind on one payment is fine, but the initial default can result in subsequent defaults. You may not have the ability to pay an additional amount each month to get caught up on the missed payment.
Obstacle 3: When should you file the motion to modify or suspend the plan payment?
Assuming you can suspend or reduce your payment, you need to decide when to do it. You can be proactive and do it now. This motion, called a "Motion to Suspend or Modify Chapter 13 Plan Payment," might cost you a bit in attorney fees.
Now I can't speak for the policy and procedure for every single Chapter 13 trustee throughout the country. Some may have very strict procedures regarding a request to modify or suspend a payment. You will have to call your bankruptcy attorney or trustee to find out more.