When you’re undergoing Chapter 13 bankruptcy and are working toward fulfilling your payment plan, making on-time payments is critical. However, unexpected occurrences might come up that delay your monthly payment.
How late can you be on a Chapter 13 payment, and what happens if you are late? Being a week late is usually not a big problem, but longer delays might adversely affect your chances at a successful Chapter 13 discharge.
What is Chapter 13 bankruptcy?
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. You make a payment each month to the trustee, and the trustee in turn mails a payment to your creditors.
During the Chapter 13 plan, you can’t open new credit accounts. After successfully making all payments under the plan, you might be eligible for Chapter 13 discharge. A discharge releases you from further responsibility for debts included in the Chapter 13 proceedings. Creditors who were involved in the plan can’t pursue you for the discharged debt.
What happens if you miss a Chapter 13 plan payment?
Skipping a Chapter 13 plan payment can negatively impact your Chapter 13 case. If you miss a payment under the plan, the court can decide to dismiss your case or change your bankruptcy case to Chapter 7. Under a Chapter 7 bankruptcy, the court can liquidate your nonexempt assets to pay your outstanding debts.
Making a payment that’s late by a few days due to an unexpected financial emergency, however, might not result in a case dismissal or bankruptcy conversion — though it’s best not to risk it. For one-time delays, you might be able to explain your situation to the trustee and reach an agreement to get up to date on your payments to avoid adverse actions against your case.
When you make your monthly plan payment, the trustee redistributes the payments across your creditors. When your payment is late or missing, the trustee doesn’t have funds to administer to your creditors. The trustee is not going to contact the lender to say that the payment is coming soon.
Is there a grace period for Chapter 13 payments?
A Chapter 13 payment plan doesn’t have a grace period. Thirty days after your Chapter 13 filing date, you are required to begin making plan payments to the bankruptcy trustee for your case. This is required even if the court hasn’t approved your plan yet.
If you have secured debt, like for a home or car, you’ll have to make adequate payments directly to your lender. The amount you pay directly to your secured lenders during this time can be deducted from the payment sent to the trustee.
What to do if you anticipate missing a Chapter 13 payment
Although you made a commitment to fulfilling your payment plan when filing for Chapter 13 bankruptcy, you might encounter financial emergencies that are beyond your control. If you anticipate being late on or having to skip a Chapter 13 payment, reach out to your bankruptcy trustee immediately. They might be willing to offer you more time to catch up on your payments.
If you’re represented by an attorney, consider updating them about your current financial status and how it will affect your ability to make on-time payments. Being candid about your financial situation can help you find a solution to getting on track with your Chapter 13 bankruptcy plan.
How to get your Chapter 13 payment reduced
Changes in your finances, whether from a lost job or unexpected hospitalization, might make ongoing monthly plan payments difficult for the foreseeable future. Depending on the status of your payment plan, you have a few options to request a payment reduction.
With regard to confirmed Chapter 13 plans, you can ask the court to reduce your monthly payment amounts by filing a motion. You will need to explain your reason or reasons for wanting to modify your plan and provide the court with documented proof supporting your claim. If the court is in favor of your motion, it will formally adjust your payment amount for the remainder of your plan.
If you’re making Chapter 13 payments but the court hasn’t confirmed your plan yet, you can file an amended plan. In this amendment, you’ll need to explain how your financial circumstances have changed and provide additional documents proving your situation. Your bankruptcy trustee and your creditors will review your proposed changes, and if all parties are in agreement, the court will use the amended plan during your confirmation hearing.
The bottom line
Communicate immediately and openly with your bankruptcy trustee about financial difficulties that are getting in the way of your payments. If you’ve proactively reached out to the trustee about an anticipated late or missed payment — and have come to an agreement on how you’ll catch up — a single incident is unlikely to result in an automatic dismissal of your Chapter 13 case.