If you fall behind on Chapter 13 payments, your creditors and trustee may well ask the court to dismiss your bankruptcy case. But don’t worry; you have options. Together, we can help you find ways to save your bankruptcy, and even possibly even discharge some of your debts in the process.
So what are your options?
Play Catch Up
Frankly, dismissing your bankruptcy case would be bad news for your creditors, because it decreases their chances of ever getting paid. Trustees realize very few debtors mean to fall behind on Chapter 13 payments. There are just times when something unexpected happens: a hospitalization that drains your savings or keeps you from working, a family emergency, a damaging storm… the list is endless. Given time, you can catch up. Explain the situation to your trustee. You should be able to negotiate an agreement bringing you current by a specific date.
If your trustee won’t play ball, ask the court. File a written opposition to their motion to dismiss. This will result in a motion hearing, where you can argue your case and formally request time to catch up. Explain what happened and propose a date when you bring your payments current. The court may give you a chance if you make a convincing argument.
Modify Your Payments
You may be able to modify your existing plan payments if you can’t easily resolve your financial emergency. If you’re behind on Chapter 13 payments because you or your spouse lost your job, for example, file a motion for a modification of the total amount you have to pay through your repayment plan. The motion must include documentation of your new financial circumstances, and the payment amount you propose.
You can’t reduce all debts. If you’ve included any spousal support or taxes in your repayment plan and you’re behind on those, you’ll still have to pay the full arrears.
Ask for a Hardship Discharge
Another potential way out if you’re behind on Chapter 13 payments is to request a hardship discharge. While it’s rare, the court may be willing to discharge some or all of your debts. This will only occur after they review your financial situation and consider the best interests of your creditors.
Here’s the downside: Trustees typically wait until the end of the payment plan to pay off unsecured debts like credit cards. Chapter 13 filings usually require you to give unsecured debtors as much money as they would have received in a Chapter 7 bankruptcy before the court will consider a discharge. Since the court can’t sell or allow you to sell any of your property for a hardship discharge, you may not qualify for such a discharge at this point.
Again, even with a hardship discharge, you’ll still have to pay priority debts like taxes and alimony.
Chapter 7 Conversion
It may be possible to convert to Chapter 7 bankruptcy at this point. If you’re behind on your Chapter 13 payments and have no other choice, you can file a motion to have this occur. If you convert to Chapter 7 successfully, your bankruptcy trustee will sell any property not protected by a bankruptcy exemption and use the proceeds to pay priority creditors. Meanwhile, the court will discharge all qualifying debt.
You may not be qualified to convert to Chapter 7, however, especially if you can’t pass a means test. Furthermore, you won’t be able to file Chapter 7 if you’re had a discharge in the past eight years. Finally, you’ll still have to pay (and catch up) on your mortgage, and pay all priority debts.
The Last Resort: Dismiss and Refile
If nothing else works, you have one final option: you can let the court dismiss your bankruptcy case and then immediately refile another. This may be your best choice anyway if Chapter 7 isn’t an option. Beware: the automatic stay on your creditors isn’t always automatic for successive bankruptcy filings. You may need to ask the court to extend it.
Contact Gregory J. Wald If You’re Behind on Chapter 13 Payments
Bankruptcy laws exist to help you when you get in over your head. So don’t give up when you’re behind on Chapter 13 payments. Contact Gregory J. Wald, Attorney At Law for a consultation. We can guide you through bankruptcy and help you straighten out your credit.