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What Happens If You Miss a Chapter 13 Payment
Missing a planned payment in your Chapter 13 bankruptcy case can significantly disrupt your debt relief process. Here's what might happen due to a missed payment:
- Immediate Notification: When you miss a payment, your bankruptcy trustee will likely notify you and your creditors immediately. They will try to work with you to resolve the issue.
- Automatic Stay Protection: The automatic stay, which prevents creditors from taking actions such as foreclosures, repossessions, and collections, may be lifted if you consistently miss payments. This could allow creditors to take action against your property.
- Case Dismissal: If you fail to make payments for an extended period, the bankruptcy court may dismiss your case, meaning all creditors will resume collection efforts. Once your case is dismissed, you'll have to repay all your debts, including interest that may have accrued during your bankruptcy case.
- Modification of Your Repayment Plan: If you face a significant financial hardship, you may be able to request a modification of your repayment plan. Our Chapter 13 bankruptcy attorney can help you negotiate a modified plan with the trustee and creditors.
- Hardship Discharge: In some cases, if you have demonstrated an inability to make plan payments due to a specific financial hardship, you may be eligible for a hardship discharge. This allows you to have some or all of your unsecured debts discharged even if you haven't completed your repayment plan.
- Conversion to Chapter 7: If you cannot make your payments and your financial situation doesn't improve, you may have to convert your Chapter 13 case to a Chapter 7 case. This would require liquidation of your non-exempt assets to pay your creditors.
The Trustee May Issue a Notice of Default
If you miss a payment in your Chapter 13 case, the bankruptcy trustee can file a Motion to Dismiss for Material Default. This legal motion requests that the bankruptcy court dismiss your case.
The motion asks the court to dismiss your Chapter 13 case because you failed to follow the plan's terms by missing a scheduled payment. This can happen if you missed a car loan payment or any other payment made under the plan.
The court will then schedule a hearing where the judge will consider the reasons for the missed payment. In some cases, the judge may allow you to continue with the plan, give you more time, or modify the plan to make it more affordable.
Your Case Could Be Dismissed
If you can't make bankruptcy payments on time, the bankruptcy judge can dismiss the case. This is common if the debtor misses payments because they cannot afford them. The judge can also dismiss the case if you fail to make domestic support obligations, such as alimony or child support, or if you fail to pay taxes.
If the court dismisses your case, you will have to start the bankruptcy process over again. This may be difficult if you have a negative credit history and may require the support of an attorney.
You May Lose the Protection of the Automatic Stay
If you miss your monthly payments, the automatic stay can end. Once the stay is lifted, creditors can take collection actions such as foreclosure, repossession, lawsuits, or garnishment again. This means any missed payments become a fresh breach of the bankruptcy plan and can lead to the loss of your assets or home foreclosure.
Progress You Have Made Under the Plan May Be Lost
If you miss a bankruptcy payment and it leads to your case being dismissed and the court denies your discharge, but you still wish to discharge debt, you'll have to start your bankruptcy case from scratch, including paying the same fees, filing the same forms, and making the same court appearances.
Additionally, if you are working with an attorney, they may charge you to file again.
What Is a Hardship Discharge, and How Can It Void Your Remaining Payments
A hardship discharge is a special type of bankruptcy discharge available to Chapter 13 debtors who cannot complete their court-approved repayment plan due to circumstances beyond their control. Unlike a regular Chapter 13 discharge that requires you to complete your full payment plan (typically three to five years), a hardship discharge allows qualifying debtors to receive debt relief even when they haven't finished making all required payments.
This discharge option recognizes that sometimes life circumstances change dramatically after you file for Chapter 13 bankruptcy. The bankruptcy court understands that certain situations, such as serious illness, permanent disability, or unexpected job loss, can make it genuinely impossible to continue with monthly plan payments.
How Chapter 13 Repayment Plans Work
A Chapter 13 repayment plan is a court-approved schedule that runs for three to five years, depending on the debtor's income and expenses. Your Chapter 13 plan requires you to make fixed monthly payments to a bankruptcy trustee, who distributes the funds to your creditors. Your monthly plan payments cover the following types of debts:
- Arrears on a Home, Car, or Other Secured Property: If you are behind on secured payments and want to keep the property, you must pay the full amount owed to cure the property.
- Household Expenses: You must pay your basic living expenses while funding your plan. This includes rent, utilities, phone bills, insurance, and food.
- Disposable Income: This is the money you have left over after paying your living expenses and your secured debts. You must pay a percentage of your disposable income to unsecured creditors over the life of your plan.
The Role of the Bankruptcy Trustee in a Chapter 13 Plan
When you file a Chapter 13 bankruptcy case, a bankruptcy trustee is appointed to oversee the entire process. The trustee reviews your repayment plan, verifies that you qualify for Chapter 13, and ensures that your plan pays creditors everything the law requires.
The trustee compares the income, monthly expenses, assets, and debt information in your bankruptcy forms and schedules to your tax returns, paycheck stubs, bank statements, and other financial documents to confirm that your repayment plan pays creditors the maximum amount you can afford.
How Many Chapter 13 Payments Can I Miss Before the Plan Is Canceled
There is no set number of Chapter 13 payments you can miss before your case is dismissed. The trustee could start that process after just one missed payment, so don't wait. When a payment becomes overdue, the trustee usually sends a notice to the debtor, giving them a short period to cure the default. That window varies by court, but it can be just a few weeks or less.
Missing a payment is treated as a material default. The trustee can file a motion to dismiss, and once the court grants that motion, the Chapter 13 case is closed. Without a discharge, you remain liable for the debt that the plan was supposed to resolve.
What to Do If You Fail to Make Chapter 13 Payment
If you miss your bankruptcy payment and want to avoid dismissal of your bankruptcy, you can:
- Catch Up on Payments: If you can afford to catch up on your payments, you can file a motion with the court to request more time to pay off the missed payments. This option requires you to make a good-faith effort to pay off the missed payments in the foreseeable future.
- Convert to Chapter 7: If you cannot catch up on your payments, you may convert your case to Chapter 7. This option requires you to pass the means test and file a Chapter 7 bankruptcy petition under 11 U.S.C. ยงยง 1307(c), which allows conversion from Chapter 13 to Chapter 7.
- Hardship Discharge: If you cannot catch up on your payments and you cannot or do not want to convert your case to Chapter 7, you may request a hardship discharge. This option is only available in limited circumstances and requires you to show that you have made a good-faith effort to make payments and that your financial situation has changed so significantly that you cannot make the payments.
- Extend or Modify Your Plan: If you cannot catch up on your payments, you may request that the court extend or modify your plan. This option will require you to file a motion with the court and show that you have made a good-faith effort to make payments, but your current financial situation is making it unsustainable.
What Should I Do If I Know I'm About to Miss a Payment
If you're worried you might miss a payment, contact your trustee or attorney before the payment due date to discuss what steps you can take to prevent potential consequences.
If you're facing financial hardship or an unexpected financial loss, such as a job loss, a bankruptcy lawyer can help you find a temporary relief option, such as a temporary extension of time to make your plan payments or a hardship discharge.
However, understand that options are limited, as Chapter 13 payment plans are held to a strict standard.
Can You Appeal the Dismissal of Your Chapter 13 Bankruptcy
You can appeal the dismissal by asking the court to grant an extension of time to file a notice of appeal. If you can show that you have a compelling good-faith reason for the delay, such as a serious illness, the court may grant you an appeal.
However, under Rule 8002. Time to File a Notice of Appeal, you only have 14 days after the dismissal order to file an appeal.
Talk with a Bankruptcy Attorney at the Rodney Okano Law Offices Today
If you're planning on filing a Chapter 13 bankruptcy or are currently struggling to follow a Chapter 13 payment plan, our Las Vegas bankruptcy attorneys can help you. During our free consultation, which we offer to everyone seeking debt relief, we'll review your situation and determine the best legal options.
Contact us today to schedule your free attorney consultation.
Contact Us Today
The Rodney Okano Law Offices is a Las Vegas Law Firm that specializes in representing those injured in motor vehicle accidents and those looking to become debt-free through Chapter 7 or Chapter 13 bankruptcy. Our firm has been in Nevada for over 20 years and has helped thousands with their car accident claims and bankruptcy filings. We offer a free attorney consultation, which can be set up by calling or sending an email inquiry.
