What Happens If You Miss A Payment In A Chapter 13 Filing?

Posted on: 10 May 2016

A key part of a Chapter 13 bankruptcy is the repayment plan. If you fail to make your payments as agreed, you could suffer harsh financial consequences. If you are currently on a repayment plan, here is what you need to know. 

What Are the Consequences of Missing Payments?

The repayment plan in a Chapter 13 bankruptcy is based on how much you can reasonably afford after paying essentials, such as your mortgage. Unless there is a change to your income, it is unlikely the trustee will excuse missed payments. 

If you do fail to make a payment, the trustee has two options. The first option is to convert your bankruptcy to a Chapter 7. Under the new status, you will not be responsible for paying dischargeable debts, but there is a catch. The trustee has the option of taking some of your assets to sell to pay off your debts. You could possibly lose funds from your bank accounts, a second home, and family heirlooms.

The second option is to ask for a dismissal of your Chapter 13 filing. If this happens, you lose the legal protections you had from your creditors. Creditors, such as your mortgage company, could file lawsuits against you, foreclose on your home, and repossess your cars and other financed assets. 

What Should You Do?

If you have experienced a financial hardship that has affected your ability to make payments on time, it is important that you act quickly. How you should proceed depends on how long your hardship is expected to last. 

If the hardship is temporary, your attorney can ask for a deferment for a period of time. In other words, the trustee could place a hold on your payments for an agreed upon time. During that period, you will still be protected from creditors. Once the period ends, you must continue the payments. 

In the event that the financial hardship is expected to last a considerable period of time, you can either ask for a conversion to a Chapter 7 or a reduction in your payments. In order to qualify for a reduction, you have to show that the payments you are going to continue to make is substantial enough to pay down the debt within a reasonable amount of time. If not, the trustee might push you towards a conversion. 

As soon as it is evident that you cannot make a payment, consult with your attorney. The sooner you act, the longer you have to assess your options and decide what is best before you approach the trustee.