When individuals file a Chapter 13 bankruptcy case, they assume the role of Chapter 13 debtors. As such, they are usually required to start making Chapter 13 plan payments roughly one month after the commencement of their case. At this time, such plan is only in the form of a tentative proposal to the trustee and bankruptcy court, subject to the objection of creditors for a finite, defined period of time. There is not yet any final order of the bankruptcy court confirming this proposed payment plan.
In the interim period between filing and confirmation, Chapter 13 debtors may get behind schedule in making their plan payments which are due monthly on the same day. Getting behind a week is typically not going to cause any significant problems for a debtor’s case, especially if the payment is made prior to the end of the month.
However, a Chapter 13 plan may require the trustee to make a monthly distribution called an “adequate protection” payment to creditors with secured interests in personal property such as an automobile. Once plan payments are missed, so are these distributions, and the creditor may file a motion to dismiss a debtor’s case for failing to make plan payments.
If the debtor survives his or her delinquency without a creditor filing a motion to dismiss, eventually the Chapter 13 trustee will file a motion to dismiss. At the point in time when either a creditor or the trustee does file a motion to dismiss the case, the following describes the consequences of such a filing:
- Dismissal of Your Chapter 13 Bankruptcy Case
The first is obvious. The motion to dismiss will usually require a response within 20 days. If the debtor fails to respond with a viable solution, the case will be dismissed. Despite the fact that a chapter 13 case has already been confirmed, defaulting on Chapter 13 payments creates the risk of case dismissal. Further, a case terminated prior to completion will, of course, not discharge any debts.
- Court Will Not Confirm Your Chapter 13 Plan
Once the period is closed where creditors may file proofs of claim and object to a chapter 13 plan, the plan may then be confirmed, which means that a bankruptcy judge enters an order giving final approval to a debtor’s chapter 13 plan. Creditors may no longer object and are bound to the plan’s treatment of their claim.
As the period for which creditors may file proofs of claim and object to a plan is a few months, debtors must still make monthly plan payments prior to confirmation. This aforementioned period runs 90 days after the first date set for the meeting of creditors. Thus, three months of payments must be made before the earliest point in time a plan may be confirmed. Chapter 13 cases with plans that remain unconfirmed, will eventually be dismissed.
- Creditors Will Obtain Relief from the Automatic Stay
The automatic stay is created at the moment a bankruptcy case is filed, which bars creditors from collection activities, with a few exceptions. Thus, a creditor may neither initiate nor continue any collection activities such as foreclosure or repossession without requesting the bankruptcy court to remove the automatic stay. Once a case is dismissed, the debtor loses this valuable protection.