A Chapter 13 bankruptcy, also known as a reorganization bankruptcy, provides the debtor with an opportunity to make regular payments to creditors over time to satisfy their debts, exit bankruptcy, and reestablish their financial standing. But, as life does not always unfold according to plan, it is not unusual for a debtor to fall behind on Chapter 13 payments.
An individual or couple who falls behind on their Chapter 13 bankruptcy payments has several options for making things right before the bankruptcy court agrees to dismiss the Chapter 13 case and remove the debtor’s protections provided by bankruptcy. The first thing to do in such a situation is to make your situation known to the bankruptcy trustee and your bankruptcy attorney.
Prompt communication is key if you fall behind on Chapter 13 payments. Are you already working with a Fort Lauderdale bankruptcy attorney from the Loan Lawyers law firm? If so, we urge you to contact us immediately regarding a missed Chapter 13 payment. We are a comprehensive debt solution law firm dedicated to helping you regain financial stability and peace of mind. We provide sensible, affordable, and proven solutions for our clients.
Do not wait and risk having your Florida Chapter 13 bankruptcy filing dismissed because you have missed payments. Contact Loan Lawyers for assistance today.
What are Chapter 13 Plan Payments?
In a Chapter 13 bankruptcy, the debtor develops a plan to repay all or part of their debts by making installment payments over a period of three to five years. Once the assigned bankruptcy trustee and the bankruptcy court agree to the plan, the debtor makes a single monthly or bi-weekly payment, which the trustee distributes to eligible creditors.
A confirmed Chapter 13 bankruptcy plan legally binds the debtor to each eligible creditor, requiring the debtor to make payments as established by the plan, either directly or through payroll deduction.
Reasons Debtors Fall Behind on Chapter 13 Payments
The Chapter 13 reorganization bankruptcy is also known as a “wage earner’s plan.” It is available to debtors who have a regular income that will allow them to repay all or part of their debt according to a Court-approved plan. Unfortunately, plans sometimes fail.
The most obvious reason you might fall behind on Chapter 13 payments is a loss of income. A debtor might lose their job or have their work hours reduced for any number of reasons, which could lead to significant financial difficulties and an inability to make payments.
Other common problems that might cause a debtor to fall behind on Chapter 13 payments include:
- Illness or injury leading to inability to perform income-producing work
- Unexpected and unavoidable expenses, such as medical bills, car repairs, storm damage recovery, etc.
- The death of a family member whose income contributed to Chapter 13 payments
Consequences of Missing Chapter 13 Payments
In a Chapter 13 bankruptcy, the debtor must start making plan payments to the trustee within 30 days after filing their bankruptcy petition, even if the Court has not yet approved the plan. Once the court confirms the plan, the debtor is obligated to make it succeed.
If the debtor fails to make scheduled payments according to the confirmed bankruptcy plan, the court may dismiss the case or convert it to a Chapter 7 bankruptcy liquidation. This is a seizure and sale of the debtor’s nonexempt property and other assets.
There is no specific criteria for how ”far behind” on payments a Chapter 13 debtor must fall to trigger consequences. Either the bankruptcy trustee assigned to the case or a creditor who has not been paid may file a motion requesting that the court dismiss the case.
Options for Addressing Missed Chapter 13 Bankruptcy Payments
If you miss one or more Chapter 13 bankruptcy plan payments, your best option is to pay the amount in arrears, if that is possible, or as much as you can. Contact your bankruptcy trustee and let them know what’s going on and what you can do to make things right.
Your bankruptcy trustee and the court want you to succeed, and you can fix this misstep if you reach out for help. There are also options if your financial capabilities have changed. A Chapter 13 bankruptcy attorney at Loan Lawyers in Fort Lauderdale, FL, can help you determine what option best fits your needs and capabilities and help you take the legal steps necessary to make it happen:
- Modifying Your Chapter 13 Repayment Plan – If the current plan has proven to be unworkable or your circumstances have changed, the bankruptcy court and your creditors can be persuaded to accept changes to the plan. A motion to modify a Chapter 13 plan may request a suspension on payments, or to reduce payment amounts and extend the term of the plan. In some cases, a debtor may agree to sell exempt property to pay down a portion of their debt and allow lower payments on what remains. You’ll have to present evidence that the changes will make the plan work.
- Dismissing and Refiling the Case – This is starting over, but it may be the appropriate option if the current plan is unaffordable. Filing a motion to have the bankruptcy court dismiss a Chapter 13 case simultaneously with a new bankruptcy petition (and a new repayment plan) allows the court to extend automatic stays that stop creditors from pursuing collections or legal action.
- Converting Chapter 13 to Chapter 7 – If your financial situation has changed so drastically that you now meet the means test for filing under Chapter 7, you might pursue a liquidation bankruptcy. This requires selling assets that aren’t considered essential for living or working, but Chapter 7 is a much faster process for wiping out debt and getting a fresh start than a Chapter 13 filing.
- Requesting a Chapter 13 Hardship Discharge – If you have had a significant loss of income or increase in expenses due to circumstances beyond your control, you can ask the court to end your bankruptcy early and wipe out your dischargeable debt with a hardship discharge. You must have suffered something like a job loss, a disabling injury or illness, or a death in the family that has caused an irreversible impact on your financial capabilities. You must also show that a modification reducing your monthly payments will not be adequate.
- Catching Up on Payments Through a Mortgage Loan Modification – A portion of the payments made under a Chapter 13 reorganization may go to pay arrearages on your mortgage. But at the same time, you may negotiate with your lender to modify your home loan or mortgage payments. If the terms of the loan modification are acceptable to the bankruptcy court, it would rewrite your Chapter 13 repayment plan without payments for mortgage arrearages.
Contact Our Fort Lauderdale Bankruptcy Attorney
Don’t wait for your financial circumstances to get worse if you are struggling to make payments required by a Chapter 13 bankruptcy reorganization plan in Florida. Your Loan Lawyers Chapter 13 bankruptcy attorney can help you seek modifications to your repayment plan. Call us today at (954) 523-HELP (4357) in Fort Lauderdale or reach out online for a review of your bankruptcy case.
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