No, you cannot skip a Chapter 13 bankruptcy payment in many cases, but let’s cover 5 different options you have when you miss a Chapter 13 plan payment.
A Chapter 13 bankruptcy is a court-supervised debt repayment plan. Unlike repaying your debts yourself, most Chapter 13 debtors pay a percentage of their unsecured debts. The amount you pay toward unsecured debts depends on the amount of your disposable income and other factors. Most Chapter 13 plans are set for 60 months. However, a few debtors qualify for 36-month plans. Your plan payment is due each month on a specific date based on the day you file your Chapter 13 voluntary petition. Payments are made to the Chapter 13 trustee who the court assigned to administer your bankruptcy case.
Most debtors pay their payments through wage deductions. Your employer sends the Chapter 13 plan payment directly to the Chapter 13 trustee each month. Wage deductions can improve your chance of succeeding in your Chapter 13 case because your payments are automatic each month. Whether you are paying the Chapter 13 trustee directly or the payments are deducted from your wages, a situation could arise that might cause you to miss a Chapter 13 payment. If that happens to you, contact your Chapter 13 bankruptcy attorney immediately. There may be a way to prevent your Chapter 13 case from being dismissed.
If you miss a bankruptcy plan payment, the Chapter 13 trustee may petition the court asking it to dismiss your case.
Many Chapter 13 trustees wait until you miss three payments before filing a Motion to Dismiss. However, do not assume that your trustee is like other trustees. Some trustees will file a Motion to Dismiss when you miss your second payment. Now, there are pros and cons of voluntary Chapter 13 dismissal, but let’s cover your options when you miss a payment.
There are several ways to get your Chapter 13 bankruptcy case back on track after missing a payment or two.
If you missed one payment, try to catch it up before your next payment is due. If you can do this, the Chapter 13 trustee probably will not file a Motion to Dismiss the case. However, if you continually miss a payment, your Chapter 13 trustee may take action.
Many people file a Chapter 13 bankruptcy because they cannot come up with the funds necessary to file a Chapter 7 bankruptcy.
If you cannot afford your Chapter 13 plan payments, talk to a bankruptcy lawyer about converting to Chapter 7 bankruptcy. If your income decreased, you might meet the income requirements for the Chapter 7 Means Test. Do you qualify for Chapter 7 bankruptcy? Use the calculator below to help you estimate your Chapter 7 bankruptcy qualification.
By converting to a Chapter 7 bankruptcy case, you can receive a discharge in as little as four to six months without paying any unsecured debts. Remember, some unsecured debts are not dischargeable, such as most back taxes, student loans, and government debts. If you owe these creditors, you continue to owe the debts after receiving your Chapter 7 bankruptcy discharge.
Your Chapter 13 trustee may allow you to catch up on your payments by making a payment and a half each month for up to six months. Other trustees may give you a set deadline to catch up on your payments. What the Chapter 13 trustee is willing to do to work out a missed payment varies by jurisdiction.
For many people, it is not easy to make a payment and a half for up to six months. However, if you can tighten your budget, this is a way to prevent your Chapter 13 case from being dismissed for failure to pay your payments.
In some cases, you might be able to amend your Chapter 13 plan to restructure your repayment plan. However, a Chapter 13 plan cannot exceed 60 months, so your plan payment will increase each month. The Chapter 13 trustee can object to the amended plan.
It is a good idea to consider why you missed your Chapter 13 plan payment. For example, if you cannot afford your mortgage payments, you may want to surrender your home. If you surrender your home through your Chapter 13 plan, you can stop making your mortgage payments.
The mortgage company will file a motion to modify the automatic stay to foreclose. The process could take several months, so you would have time to move before the foreclosure. The time may allow you to save money for a deposit on a rental unit and get back on track financially.
If you know that you will be out of work or may face financial hardship, your attorney may file a request for a moratorium. The request asks the court to give you a two to three-month break from making your Chapter 13 plan payments.
However, this option only works if the financial hardship is temporary and is for a good reason. Also, your plan cannot be extended past the maximum number of months allowed by law. Some Chapter 13 bankruptcy attorneys calculate Chapter 13 plans based on 57 months. The “cushion” allows for a moratorium during the five years in case a financial crisis occurs that requires you to skip up to three payments.
Do not wait until you miss a payment or your Chapter 13 trustee files a Motion to Dismiss Chapter 13 Case. It is best to address the issue now because you may have more options available to prevent dismissal than you will if you wait until you miss a few Chapter 13 plan payments.