If you miss a Chapter 13 payment, you still have options
Image Source: Flickr User Simon Cunningham
Because Chapter 13 bankruptcy repayment plans last so long – three to five years – it’s common that a bankruptcy filer might miss a payment during the process. You may have an unexpected expense crop up such as a car repair, overlarge utility payment, medical emergency or other crisis that affects your finances and makes making a scheduled plan payment impossible. However, missing a payment doesn’t necessarily mean that your bankruptcy will crash and burn. Here’s what you need to know and the options typically available when you miss a Chapter 13 payment.
#1 Catch up the missed payment
You may be able to ask the court, via your North Carolina bankruptcy attorney, to have extra time to catch up the missed payment. If you can demonstrate that you had a legitimate financial emergency that caused you to miss an installment, the court will likely be sympathetic and work with you. Overspending, poor planning, or messing up your budget are not valid excuses. The court is looking for circumstances you cannot prevent or control.
#2 Modify your repayment plan
If your financial crisis was longer-term in nature, such as losing your job or being cut back to part-time, such that you will not be able to keep on with your plan payments, your attorney can ask for your repayment plan to be permanently modified to lower the payments down to what you can now afford. Your attorney will have to recalculate plan payments based on your new lower wages and submit it to the Trustee assigned to your case for approval.
#3 Get a hardship discharge
In some cases where the Chapter 13 filer suffers a significant financial setback during their repayment period, the court may allow a hardship discharge that fast-forwards you to the end of your plan even though you have not made all payments. This is rare but may be allowed under certain circumstances. Your creditors must receive at least as much as they would under a Chapter 7 bankruptcy. The hardship discharge will not change your obligations for secured debt, alimony or child support.
#4 Convert to a Chapter 7
A Chapter 13 case can be converted to a Chapter 7 under certain circumstances. This allows you to have unsecured debts discharged almost immediately. However, past due mortgage or auto loan payments will come due if you file Chapter 7, and you may have to surrender the property. You will have to qualify for a Chapter 7 bankruptcy just as you would if you were approaching it as a new bankruptcy. You will be assigned a new Trustee, and it will essentially be a brand new case.
#5 Refile the Chapter 13 after dismissal
If you don’t make Chapter 13 plan payments, your case will be dismissed. This can buy you some time to weigh your options, catch up on back mortgage or car payments, or make other arrangements with your creditors. You can then file another Chapter 13 or a Chapter 7 once you take care of your secured debts or find another job and can once again file Chapter 13. Filing a subsequent bankruptcy may lessen your automatic stay unless the court agrees to extend it. Your bankruptcy attorney can explain all of this.
Talk to your attorney
If you have missed a payment or know you may, talk to your bankruptcy attorney to get advice on how to handle the hiccup in your plan and move past it without wrecking your financial fresh start that bankruptcy offers.
If you’re deep in debt in North Carolina, contact the Law Offices of John T. Orcutt for a free bankruptcy consultation at one of our offices in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington. Call +1-919-646-2654 for a free NC bankruptcy consultation today.