If you file Chapter 13 bankruptcy, you will have to follow a set payment schedule for three to five years. In a perfect world, you’d stick to it and keep up with all your payments. However, sometimes that doesn’t happen.
You might lose your job or face another financial hardship that makes it difficult for you to make your payments on time. If you find yourself in this situation, you may wonder whether you can defer your Chapter 13 bankruptcy payments.
Can I defer Chapter 13 bankruptcy payments?
You may be able to modify or suspend Chapter 13 bankruptcy payments. It all depends on the details of your case. You’ll need to address the following obstacles before you miss a payment completely.
Do you pay your mortgage or car payment directly to the trustee?
Some bankruptcy districts allow you to combine your mortgage and car payments into your Chapter 13 payment plan. This option leaves you with one large consolidated payment to make. If you’ve gone this route and you miss a payment, you simultaneously miss a mortgage and/or car payments.
In this instance, the trustee may file a motion to dismiss your Chapter 13 case and remove you from bankruptcy protection. You’ll have to oppose the trustee’s motion and catch up on the delinquent payment before creditors start to contact you.
Can you afford the current payment?
Falling behind on one payment may not be a huge deal. If you miss one payment, do your best to catch up on it as soon as possible. You may want to make a partial payment if you can’t cover it completely.
If you default on multiple payments, there is probably an issue. The current payment may be too high for your current income and budget.
When should you file a motion to modify or suspend the payment?
If you can suspend or reduce your payment, you’ll need to figure out when to. You may be proactive and do it right away. This is called a motion to suspend or modify Chapter 13 plan payment and will probably cost you a bit in attorney fees.
While every bankruptcy trustee is different, some have a strict process for requesting to modify or suspend payments. You’ll need to consult your bankruptcy attorney or trustee for more information on their specific guidelines.
Tips if you can’t make your payments
Consider these options if you have trouble with your payments.
Ask for a hardship discharge
Even if you don’t make all of your plan payments, you may be eligible for a hardship discharge. If you request one, the court will review your situation and consider the best interest of your creditors. With a hardship discharge, your case will be terminated before the three- to five-year repayment plan is up.
Switch to Chapter 7
If you’re unable to modify your monthly payments and aren’t approved for a hardship discharge, it may make sense to convert to Chapter 7 bankruptcy. This is where your nonexempt property will be sold and all of your unsecured debts will get wiped out. Keep in mind that you’ll need to pass the means test to move forward with Chapter 7.
Dismiss and refile your case
As a last resort, the court can dismiss your case and refile a different Chapter 13 bankruptcy. You may go this route if you’re unable to keep up with your Chapter 13 payment plan and aren’t a good fit for Chapter 7.
Can I lower the monthly payments?
If your income goes down during your Chapter 13 bankruptcy and you can’t make your monthly payments any longer, you can ask the bankruptcy court to reduce them. To determine whether or not you deserve lower payments, the court may consider several factors including your expenses, debts and the nonexempt property you own.
Review your situation before you ask for lower payments. If the court notices your expenses have decreased or your income has increased, they may raise your payments instead of lower them.
The court may approve your request if you took a lower-paying job or are self-employed and lost customers or faced unexpected business expenses. They might also lower your payments if you suffer a serious injury or disability or are forced to pay health insurance costs that your employer covered in the past.
If you can’t make your Chapter 13 bankruptcy payments, speak to your bankruptcy attorney or trustee to learn more about your options. They can help you identify potential issues and recommend the best way to proceed with your case.