In a Chapter 13 bankruptcy, a court appointed trustee receives payments from the person who has filed the bankruptcy and then distributes those payments among the filer's creditors. Sometimes funds are taken as an automatic payroll deduction, kind of like the deductions your employer makes for social security taxes. A Chapter 13 repayment plan can last from three to five years, so it's natural to worry about what might happen in the meantime. For example, what happens if you can't make all of your payments and you start to fall behind? Or what if you can't finish the plan in 60 months? This could happen if a claim comes in for a higher amount than expected; for example, if you are charged higher taxes than the plan allotted for.
If you fall behind on your Chapter 13 payments, the trustee will file a "Motion to Dismiss." If your case's trustee files a Motion to Dismiss, there's no need to panic. Remember you have an important allyâ€•your bankruptcy attorneyâ€•who can help you work out kinks in your journey to financial freedom. Call you attorney and explain the situation, and he can help you work with your trustee to fix the problem. The good news is that trustees are often willing to work with you to get you back on track with your payments.
Your trustee may request that you pay some portion of the amount due from late payments up front, but then he may allow you to distribute the rest of the payments over time, allowing you to catch up gradually. Say for example that you fall behind by $3000, with 36 months remaining in your plan. Your attorney can help you craft a potential cure for your delinquency. In this case, he may recommend that you propose to spread out the payments over the remaining months left in your plan. In this case, you would only have to add about $83 each month to work out the delinquency. Of course, if you fall behind again your trustee may not be so understanding, and in fact he may have the ability to dismiss the case without filing the Motion first. If you have fallen seriously behind on your payments due to some unexpected trouble such as illness, but your trustee won't accept a proposed plan to cure the delinquency, your attorney may recommend converting your case for a Chapter 7 discharge. Another possible alternative is to voluntarily dismiss your case and refile at a later date. Your attorney's decision will depend on your specific facts, and so you should constantly keep your attorney's office informed of your situation.
As you can see, a good attorney is an essential team member for a successful bankruptcy. If you need to file for bankruptcy protection, there is no need to get bogged down in the what-ifs. Your attorney can answer any questions you have about your situation, and she will also be instrumental later on should you encounter any bumps along the road. A lot of the potential hiccups you may be worrying about actually have very workable solutions. You are entitled to be treated fairly as you recover from financial troubles, and dealing with an attorney, a trustee and the bankruptcy courts, all of whom are part of a system designed to help people in trouble, will be much more agreeable than talking to pushy bill collectors.