Is late Chapter 13 payment OK?


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Dear Bankruptcy Adviser,
My case was already confirmed, but I missed the due date on my Chapter 13 bankruptcy payment. What will happen? I am a week late. Will the case be dismissed?
— Joey

Dear Joey,
Chapter 13 bankruptcy is also known as a reorganization bankruptcy. You, known in bankruptcy terms as “the debtor,” enter into a 36- to 60-month repayment plan administered by a court-appointed trustee. A payment is made each month to the trustee, and the trustee in turn mails a payment to your creditors.

Being a week late is usually not a big problem. The Chapter 13 trustee may not even notice the late payment if you make it prior to the end of the month because the trustees usually distribute creditor payments once a month. In these cases the debtor is paying credit cards, unsecured loans or maybe delinquent mortgage payments. My clients often will have a payment due in the early part of the month only to make it toward the end. I have not had any issues in these cases.

But in some bankruptcy court districts, the debtor is paying his or her mortgage or car loan payments directly to the trustee. One payment will come in to pay numerous other payments. Other districts allow the debtor to make payments directly to the mortgage or car lender rather than mailing the payment directly to the trustee.

If you are paying a mortgage or car loan through the bankruptcy trustee, a late payment is a problem. The trustee is not going to contact the lender to say that the payment is coming soon. If your payment due date is prior to the trustee distribution date, the trustee will not have anything to send to your mortgage or car lender.

I have seen trustees aggressively file a motion to dismiss the Chapter 13 case if something like this happens. You can save your case by opposing the motion to dismiss, but that will likely cost you more in attorney fees and also make you scramble to get that previous payment and the subsequent payment in on time.

One thing to keep in mind is that the trustee does have the right to garnish wages directly from your employer. The trustee will not do this when you are a week late, but might when you are a month behind. Because most people want to keep the information about their bankruptcy from their employer, this can cause a lot of stress and anxiety.

The short answer is that you probably will be fine. Just know that like most things in life (and especially in law), there is always a long (and boring) answer, too.

Good luck!

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