Going through the Chapter 13 bankruptcy process can give you a chance to get a fresh financial start, but you need to abide by the rules of whatever deals you make. That means that you need to make each bankruptcy payment on time. If you don’t, you risk undoing this entire process and could find yourself in trouble with creditors once again. A Bergen County Chapter 13 bankruptcy lawyer can tell you how missed payments can become a major issue.
How Chapter 13 Payments Work
When you make the decision to declare bankruptcy, it’s important to understand your options. The most common option is to declare Chapter 7, which liquidates your assets to repay creditors. While this process is generally faster and less expensive, you’ll need to ensure that you can pass the means test in order to qualify.
If you do not pass the means test or you have assets that you wish to protect, you may choose to file Chapter 13 bankruptcy. This essentially reorganizes your debts into one monthly payment that you will make over the course of three to five years.
Role of the Bankruptcy Trustee
When you file for bankruptcy, a trustee will be assigned to your case. It is their job to ensure that you abide by the rules and regulations of this process. During a Chapter 13 case, you will provide the monthly payment to the trustee, who will then distribute the funds among the creditors in accordance with the court-approved plan.
Why On-Time Payments Matter
Making payments on time is critical for your case. Because this is a legally binding plan, failure to make payments in accordance with the terms and conditions can jeopardize your entire case. Additionally, if you fail to comply, it can result in loss of automatic stay protections that prevent creditors from pursuing collection efforts against you.
What Happens If You Miss a Chapter 13 Payment in Bergen County?
Missing a Chapter 13 payment can have serious consequences depending on the timing, number of missed payments, and the actions taken by the trustee.
Your Trustee May File a Motion to Dismiss
Missing even one payment is enough for your trustee to file a motion to dismiss your case, especially if you did not communicate with them prior. However, most trustees will wait until multiple payments have been missed before taking this action. It’s important to understand, however, that they are not obligated to wait for multiple missed payments to accrue before filing this motion.
As such, one missed payment rarely leads to a dismissal on its own, but a missed payment with no communication or multiple missed payments significantly increase the risk that your case will be dismissed.
You Can Lose the Automatic Stay
In the event your case is dismissed, the automatic stay will be lifted. This will allow your creditors to:
- Continue collection efforts
- Move forward with foreclosures and repossessions
- File lawsuits against you
- Garnish your wages
- Place liens on your property
You Lose The Progress You’ve Made
It’s important to understand that, if your debt is dismissed, it can result in the loss of partial debt reduction and forgiven interest.
Your Case May Be Converted to Chapter 7
In some instances, if you miss a payment on your Chapter 13 plan, your trustee may file a motion to convert your case to Chapter 7 bankruptcy. However, this will only occur if you qualify for this Chapter, and your trustee believes that your creditors would receive more repayment through this option as opposed to your current failing Chapter 13 plan. This ultimately puts your non-exempt assets at risk of liquidation.
What Should I Do If I Know a Bankruptcy Payment Will Be Late?
Unexpected events can affect our finances, whether you incur unexpected medical bills or lose your job. A bankruptcy trustee and the court should understand that. If you believe that you are going to fall behind on your Chapter 13 repayment plan, taking the necessary steps to protect yourself and your ability to remain on the plan is critical
Contact Your Trustee Immediately
The most important thing to do if you believe your payment will be late is to reach out to your bankruptcy trustee right away. Trustees appreciate proactive communication, as it shows that you care about your plan. If your trustee doesn’t receive a payment and, without hearing from you, they may assume that you are blowing off this payment and your plan as a whole, prompting them to file a motion for dismissal.
Contact Your Attorney
You should also contact your attorney immediately, as they can assist you in communicating with the trustee. As such, they may:
- Negotiate with the trustee
- Help prevent a motion to dismiss
- File a motion to modify the current Chapter 13 plan
Document Why the Payment Will Be Late
Unfortunately, unexpected circumstances are a part of life. However, you should ensure you document matters that prevent you from adhering to the plan, such as:
- Medical bills from an emergency
- Unexpected family expenses (flooding to the family home, car accidents, etc.)
- Job loss
Ensuring you have proof of circumstances that prevent you from adhering to the plan can help increase your chances of receiving more flexibility from your trustee.
Options if You Are Struggling to Keep Up With Payments
If you think that this is going to be more than a one-time thing, then you need to address your situation as soon as possible. You should talk to a lawyer and your trustee about adjusting your plan if there has been a major change to your financial situation.
Request a Temporary Break or Short-Term Catch-Up Period
Under certain circumstances, the court may allow a short-term pause in your plan to allow you to get your finances under control before resuming your payment plan.
Request Modification of Your Chapter 13 Plan
With the assistance of your attorney, you may be able to request a modification to your current plan if:
- Your income has changed
- Your necessary expenses have increased
Ask the Court to Extend the Payment Plan Duration
If you are struggling to adhere to the current payment plan, the court may increase the duration of the plan to five years. This can help reduce the amount you pay monthly as it essentially defers a portion of the payment to a later date.
Consider Conversion to Chapter 7 Bankruptcy
As mentioned, conversion from Chapter 13 to Chapter 7 is possible if you qualify for this chapter. This is often an option for those who will face long-term hardship that prevents them from adhering to the current plan. However, you should note that this does put certain assets at risk of liquidation. As such, it is in your best interest to discuss this option with your attorney before making the decision to convert your case.
Extreme Hardship Discharge
In rare circumstances, you may be able to seek a hardship discharge. This is typically granted when:
- You are experiencing circumstances beyond your control
- Creditors have already received as much as they would if you had filed Chapter 7
- Modifications of your plan are not feasible
Talk to a Bergen County Bankruptcy Lawyer Today
If you are ready to file for bankruptcy or are struggling with your current plan, working with an attorney at the Law Office of Boyd & Squitieri is critical. You can schedule a consultation and learn more about the Chapter 13 bankruptcy process from our experienced legal team. Contact us today to learn how we can help you decide whether or not this is the right option for you.