The Importance Of Making Timely Chapter 13 Bankruptcy Payments

If you fail to make your Chapter 13 bankruptcy payments, several consequences can arise that could lead to the dismissal of your case. Here’s what happens and what you can do to avoid dismissal:

Consequences of Missing Payments

1. Dismissal of the Case
   • Automatic Stay Ends: If your Chapter 13 case is dismissed, the automatic stay that protects you from creditors’ collection efforts is lifted. This means creditors can resume collection activities, including foreclosure, repossession, wage garnishment, and lawsuits.
   • Loss of Protection: You lose the protections provided by the bankruptcy court, potentially returning to your pre-bankruptcy financial state.
2. Conversion to Chapter 7
   • Court’s Decision: The bankruptcy court may convert your Chapter 13 case to a Chapter 7 bankruptcy if you fail to make payments, particularly if it appears that you can no longer adhere to the repayment plan and still have non-exempt assets that can be liquidated.
   • Asset Liquidation: In Chapter 7, your non-exempt assets may be sold to pay off creditors, and you may receive a discharge for remaining unsecured debts.

Steps Before Dismissal

1. Notice of Default
   • Trustee’s Action: The Chapter 13 trustee typically issues a notice of default if you miss payments. This notice will give you a specific period to catch up on missed payments or provide a satisfactory explanation.
   • Opportunity to Cure: You usually have a brief period (often 10 to 14 days) to make the missed payments or file a motion to modify your repayment plan.
2. Motion to Dismiss
   • Trustee’s Motion: If you do not respond to the notice of default or fail to catch up on payments, the trustee may file a motion to dismiss your case. A hearing will be scheduled, giving you an opportunity to argue why your case should not be dismissed.

Long-Term Consequences

1. Re-filing Restrictions
   • Time Limits: If your case is dismissed, you may face restrictions on re-filing for bankruptcy. For instance, if you file for Chapter 13 again within a year of dismissal, the automatic stay may only be in effect for 30 days unless extended by the court.
   • Two-Year Bar: In some cases, particularly if your case is dismissed with prejudice, you may be barred from re-filing for bankruptcy for up to two years.
2. Credit Report Impact
   • Negative Reporting: The dismissal of your bankruptcy case will be reported to credit agencies, which can significantly impact your credit score and remain on your credit report for up to 10 years.

Options to Avoid Dismissal

1. Plan Modification
   • Court Approval: You can request the court to modify your Chapter 13 repayment plan if your financial situation changes. This may involve extending the repayment period or reducing the payment amount.
   • Evidence Required: You must provide evidence of your changed circumstances and demonstrate that the modified plan is feasible.
2. Hardship Discharge
   • Qualifying Circumstances: In some cases, if you cannot complete your plan due to circumstances beyond your control (e.g., severe illness or job loss), you may qualify for a hardship discharge, which discharges some of your debts without full repayment.
3. Communication with Trustee
   • Proactive Communication: Regularly communicate with your bankruptcy trustee. If you anticipate missing a payment, notify the trustee immediately to explore possible solutions.

Managing Your Chapter 13 Payments

1. Budgeting and Financial Management
   • Create a detailed budget to ensure you can meet your monthly payment obligations. Consider cutting unnecessary expenses and seeking additional sources of income if necessary.
2. Emergency Fund
   • Establish an emergency fund to cover unexpected expenses that might otherwise prevent you from making your Chapter 13 payments.
3. Professional Advice
   • Consult with a bankruptcy attorney or financial advisor to help manage your repayment plan and avoid potential pitfalls.

By understanding the consequences and taking proactive steps, you can manage your Chapter 13 payments effectively and avoid the dismissal of your case.