5 Options to Consider After Missing a Chapter 13 Payment

5 things to consider after you have missed a chapter 13 payment
Information in this article does not constitute legal advice, it is for informational purposes only, and may not constitute the most up-to-date information. Readers should contact their attorney for advice on any particular legal matter.

Chapter 13 bankruptcy is a legal process that allows individuals to repay their debts over three to five years under the supervision of a court. Therefore, you shouldn't miss a Chapter 13 payment plan.

The Chapter 13 payment plan is designed to repay a portion of the debtor’s unsecured debts. It can be credit card bills, medical expenses, etc, based on the individual’s disposable income. 

In Chapter 13 bankruptcy, individuals must make monthly payments to a court-appointed custodian managing their case. Payments are typically due on a specific date each month and can be made through wage deductions. The payments can also be made to the Chapter 13 custodian directly. However, wage deductions simplify the process.

Although missing a Chapter 13 payment plan is not allowed, there are alternatives available for individuals struggling to make their payments. These alternatives help you to address the situation to prevent dismissal. 

Contacting your Chapter 13 attorney is the first step in finding a solution and ensuring a successful income. The goal is to find a solution that will allow you to complete your Chapter 13 plan and obtain a fresh financial start.

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Chapter 13 Bankruptcy Dismissal Due to Non-payment

Missing a payment in a Chapter 13 bankruptcy case can have serious consequences. Failure to make your monthly payment, can force the Chapter 13 custodian assigned to your case to petition the court to dismiss your case.

The timing of the motion to dismiss can vary between custodians. Some will wait until three missed payments while others will file after one missed payment. It is also essential to understand that you need a payment to ensure your chances of completing your Chapter 13 plan and obtaining a fresh start financially. 

Some possible solutions to handle missed payments include;

  • Obtaining a loan to take the missed payments
  • Seeking the assistance of a financial advisor or a debt counselor
  • You can opt to convert your Chapter 13 bankruptcy into a Chapter 7 bankruptcy
  • You can negotiate on a modified payment plan.

Each option has its pros and cons, and you should seek the advice of a bankruptcy attorney before settling for any.

Options to Address a Missed Chapter 13 Payment in Your Bankruptcy Case

If you miss a payment in your Chapter 13 bankruptcy case, there are steps you can take to get your chance back on track. 

1. Rectify Your Chapter 13 Bankruptcy by Catching up on Missed Payments

One option is to catch up on the missed payment as soon as possible. This means making the outstanding repayment before the next payment is due. This can help prevent the Chapter 13 custodian from filing a Motion to Dismiss. 

However, if you continue to miss payments, you must take action before the custodian takes legal action against you. 

2. Convert Your Chapter 13 to a Chapter 7 Bankruptcy

In some cases, if a debtor cannot make the required payments in a Chapter 13 bankruptcy, they may consider converting to a Chapter 7 bankruptcy plan instead. 

A Chapter 7 bankruptcy allows for a quicker discharge of unsecured debts. It takes between 4 to 6 months to discharge debts and doesn't need to make payments.

However, it is essential to note that some unsecured debts, such as; back taxes, student loans, and government debts, are not dischargeable in a Chapter 7 bankruptcy.

To determine if you qualify for a Chapter 7 bankruptcy, you can use a Means Test calculator to estimate your eligibility based on your current income. Every individual's financial situation is unique, and the best course of action will depend on various factors.

3. Chapter 13 Custodian Agreement for Missed Payments

Another option to consider is to reach an agreement with your Chapter 13 custodian. This agreement will allow you to catch up on your missed payments and get your case back on track. 

The specific terms of the agreement will vary by jurisdiction. However, most custodians may allow you to make a payment and a half each month for up to six months. Alternatively, some custodians may give you a set deadline to catch up on your payments.

While it may be challenging for everyone to make a payment and a half for up to six months, it can be a solution for those who can tighten their budget. 

4. Modify the Chapter 13 Bankruptcy Repayment Plan

If you are facing financial difficulties and have missed a Chapter 13 bankruptcy payment, you can amend your bankruptcy and restructure the payment plan. 

For instance, if you cannot afford your mortgage payments, consider surrendering your home through the Chapter 13 plan, giving you time to save money for a rental unit and get back on track financially. 

It is essential to consider why you missed the payment and explore different options to avoid a potential dismissal of your case.

5. Request for a Temporary Break from Making Chapter 13 Payments

If you anticipate a temporary financial setback, your bankruptcy attorney may request a moratorium on your Chapter 13 payment plan.

This request asks the court to grant you a two to three-month break from payments. However, this option is only available if your hardship is temporary and justified. 

Additionally, you can extend your Chapter 13 plan to the maximum number of months allowed by law. Some bankruptcy attorneys account for a potential moratorium when calculating Chapter 13 plans, leaving a three-month "cushion" in case of financial difficulties.

Act Promptly: Consult with Your Chapter 13 Bankruptcy Attorney

It is essential to act quickly if you anticipate missing a Chapter 13 payment. The earlier you address the issue, the more options you will have to prevent your case from being dismissed.

Delaying the resolution of the issue may make it more challenging to keep your Chapter 13 plan on track. Consulting with your bankruptcy attorney as soon as possible is vital to finding a solution and avoiding the risk of case dismissal.

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