Completing a Chapter 13 repayment plan isn’t easy. If you fall behind on your Chapter 13 plan payments, your bankruptcy trustee or a creditor will usually ask the court to dismiss your bankruptcy case. However, other options might help you save your bankruptcy and obtain a discharge. Read on to learn more about your options if you have fallen behind on your Chapter 13 plan payments.
(Learn about the Chapter 13 plan, including what it is, what you must pay in it, and more, in The Chapter 13 Repayment Plan.)
Many bankruptcy debtors miss plan payments because of a temporary financial emergency. But most debtors can get caught up if given enough time. If you’re facing dismissal, your first step is to speak with the trustee. In most cases, you’ll be able to reach an agreement that will allow you to bring your payments current by a specific date.
If the trustee isn't reasonable (which is rare), you can explain your circumstances to the court by filing a written opposition to the motion to dismiss and arguing your side at the motion hearing. You’ll request more time to catch up on your plan arrears and explain why you’ll be able to do so. If you make a convincing argument, most courts will allow you more time or add a specific catch up plan to your Chapter 13 plan to cure your default.
If it isn’t possible to resolve your financial emergency (for example, you lost your job, or your employer permanently reduced your pay), then you might be able to reduce your payments by asking the court to modify the amounts paid through your repayment plan.
In your motion, you’ll need to propose a new payment amount and provide the court with documentation showing your changed circumstances. However, keep in mind that if your plan pays only debts that you must repay fully—such as domestic support arrearages and certain tax debt—you won’t be able to reduce your payment amount. In that case, a modification won’t be possible.
(For more information on how to reduce your plan payment amount, see Modifying Your Chapter 13 Plan Payment.)
If you can’t continue with your Chapter 13 bankruptcy, you might be eligible to receive a hardship discharge even though you haven’t completed all of your required plan payments. The court will analyze your financial situation and consider the best interest of your creditors before granting a hardship discharge.
However, most filers won’t get any debt wiped out through a hardship discharge. Because the court won’t sell any of your property when you ask for a hardship discharge, to wipe out any debt, your nonpriority unsecured debts—such as credit card and medical bills—must have received as much as they would have in a Chapter 7 case through the Chapter 13 repayment plan.
It’s rare for this to happen because most trustees wait until the end of the plan to pay these creditors (trustees pay higher priority debt first). Also, a hardship discharge won’t wipe out your priority debts that you’re required to pay, such as certain taxes or domestic support obligations (like child support and alimony).
(To learn more, see Getting a Chapter 13 Hardship Discharge.)
If you can’t make or modify your monthly payment, and if you won’t get any benefit from a hardship discharge, you might want to consider converting to Chapter 7. Converting to a Chapter 7 is different than a hardship discharge in several ways—but especially in one crucial aspect: The Chapter 7 bankruptcy trustee will sell your nonexempt property—property that you can’t protect with a bankruptcy exemption—for the benefit of your creditors. And all of your qualifying debt will get wiped out.
You’ll have to qualify for a Chapter 7 discharge (most courts require you to pass the means test, and you’re entitled to a discharge only once every eight years). Also, it won’t get rid of your priority debts or allow you to catch up on your mortgage arrears.
(To learn more, see Converting a Bankruptcy Case From Chapter 13 to Chapter 7.)
If none of the options above allow you to meet your goals, you can always let the court dismiss your case and refile another Chapter 13 bankruptcy. This might be your best option if you can’t afford your Chapter 13 plan payment right now and a Chapter 7 bankruptcy doesn’t make sense.
Once your financial situation improves, you can file another Chapter 13 to pay your debts. But keep in mind that the automatic stay (the order that stops your creditors from collecting while you’re in bankruptcy) isn’t always put in place when you file successive bankruptcy cases. Depending on when you file, you might have to ask the court to extend the automatic stay in your matter.
(To learn more, see How Bankruptcy Stops Your Creditors: The Automatic Stay.)