When you file for Chapter 13 bankruptcy, you make a repayment plan and agree to stick with it. This stops your creditors from coming after you. You need to make each payment on time, though, because if you miss a Chapter 13 bankruptcy payment, you could end up opening yourself up to harassment from debt collectors. If you think that you are going to miss a payment, this advice from a Montgomery County Chapter 13 bankruptcy lawyer might help you.
What Are the Consequences of Missing a Payment?
Though missing a payment on your Chapter 13 plan may not seem like a massive issue, it’s important to understand that this can have a devastating impact on your case.
Risk of Case Dismissal
A missed payment puts you at risk for the dismissal of your case. Once the payment date passes, your bankruptcy trustee may then file for dismissal for material default.
Difference Between Dismissal and Discharge
It’s important to understand that a case dismissal is drastically different from a debt discharge. When your case is dismissed, it is immediately closed without the erasure of eligible debts. As such, you will remain liable for the debts in your name, and collection efforts will resume. When a debt is discharged, it means you have successfully completed your bankruptcy case, and you are no longer legally obligated to repay the discharged debts.
Potential for Conversion to Chapter 7
In some instances, a missed payment will result in the conversion of your Chapter 13 case to a Chapter 7 case. This means that assets can be liquidated and sold to repay outstanding debts to creditors.
What Should I Do If I Think I’m Going to Miss a Chapter 13 Bankruptcy Payment?
In the event that you think you are going to miss a Chapter 13 payment, whether you just lost your job or have ended up in the hospital, it’s imperative to take immediate action to try to reduce the impact this will have on your case.
Notify your Trustee
One of the first things you should do is immediately notify the trustee assigned to your case. Doing so can show that you are acting in “good faith,” and helps prevent an assumption of neglect. Trustees understand that sudden and unexpected hardships occur. As such, taking the time to inform them before you miss the payment will make the trustee much more willing to work with you.
Inform Your Attorney
In addition to notifying the bankruptcy trustee, you should also immediately notify your attorney. They can help protect you when communicating with the trustee, such as negotiating solutions or seeking temporary relief on your behalf.
Can a Bankruptcy Plan Be Modified?
Under certain circumstances, you may be able to seek a modification of your Chapter 13 repayment plan if you are unable to make the current payment amount.
When Modification Is Appropriate
There are certain situations that may arise for which the court will grant a modification. This includes:
- Reduced income
- Job loss
- Emergency medical bills
- Increased necessary expenses
Possible Types of Modifications
If a modification is granted, it may take the form of:
- Reduced monthly payments
- Extended repayment period
- Temporary suspension of payment obligations
- Hardship discharge (rare, but possible)
What Happens if Bankruptcy is Dismissed?
In the event that you miss a payment without notifying your trustee and they file a motion to dismiss your case, it’s critical to understand what will happen.
Loss of Automatic Stay Protections
As mentioned, when your bankruptcy case is dismissed, you will retain all debt in your name. Additionally, the automatic stay, which prevents creditors from contacting you while a bankruptcy case is ongoing, will be withdrawn. As such, collection efforts will resume, including phone calls, wage garnishments, and lawsuits.
No Discharge of Debts
The primary objective of bankruptcy is to eliminate the eligible debts in your name so you can achieve a financial fresh start. However, because your case is dismissed and you will retain all debts, this is not possible, meaning you can be thrown back into the vicious cycle of debt.
Talk to a Blue Bell Bankruptcy Attorney
Bankruptcy can be an incredibly complicated legal process. As such, if you are thinking about filing for bankruptcy or struggling with your current plan, the team at Mudrick & Zucker, P.C., may be able to help. Our firm has helped those in Montgomery County and the surrounding area achieve relief and regain control of their finances. Contact Mudrick & Zucker to schedule a consultation with our team.
