A Chapter 13 bankruptcy is also called a “wage earner’s plan,” because it allows for filers who earn a regular income to pay back their secured debts over a period between three to five years. But what happens if I fall behind on Chapter 13 repayment plan payments? The Automatic Stay is rescinded and creditors can once again pursue you. They can file debt collection lawsuits, repossess property, foreclose on your home, and garnish your wages.

Falling Behind on Chapter 13 Payments in Athens and Georgia

In a Chapter 13 bankruptcy case, unsecured debts are eliminated, but secured debts must all be paid back. The primary benefit in a Chapter 13 bankruptcy is that that filer will be able to keep their home. If you’re not sure whether Chapter 13 bankruptcy or Chapter 7 bankruptcy is right for you, an attorney can help you make the best choice.

Staying current on Chapter 13 bankruptcy payments, however, is not always easy – or – possible – for some filers. So what happens if I fall behind on Chapter 13 repayment plan payments? In the event that you have fallen behind on your Chapter 13 payments, you have options. However, it is important to act quickly because if you get too far behind a creditor or your bankruptcy trustee may ask the court to dismiss your bankruptcy case. Essentially, when your bankruptcy case is dismissed, you’ll no longer be protected from creditors seeking payment for your debts, and you’ll still be liable for your debts. Naturally, this is a consequence you want to avoid.

Several options for filers who have fallen behind on their payments include:

• Catch up on your payments – Some people miss payments due to a temporary financial emergency. While asking for time to catch up on missed payments may sound like an obvious solution, many filers fear discussing their inability to pay with the bankruptcy trustee. Most trustees are reasonable and want you to succeed. If a motion to dismiss is filed, you can respond with a written motion to oppose dismissal, explaining that you can catch up on payments if given additional time.
• Modify plan payments – If you believe that you will not be able to catch up on payments because you have lost your job or suffered another long-term decrease to your income, you can ask the court to modify your Chapter 13 payments. This will require you to prove to the court that your circumstances have changed, and propose a new plan. An attorney may be able to help you negotiate with the court in these circumstances. By modifying your plan, you could potentially reduce your payments, or extend your plan so that you have more time to make payments.
• Request a hardship discharge – Although somewhat uncommon, you may be able to convince the court to discharge some of your debt based on hardship. This is another instance in which enlisting the help of an attorney may be a wise decision. You need to show that you’re unable to make payments due to circumstances beyond your control, and it’s impossible to modify your plan. However, the court will consider your request in terms of what is in the creditor’s best interest. Thus, unless a creditor has been paid at least as much as they would have in a Chapter 7 bankruptcy, a discharge is unlikely.
• Convert to a Chapter 7 bankruptcy – Unlike a hardship discharge, if a bankruptcy is converted to a Chapter 7, the trustee will sell your home to cover unpaid debts. In the event that there are additional unpaid debts that cannot be covered, they will be discharged (with the exception of non-dischargeable debts).
• Allow the court to dismiss your case – If you cannot catch up on your payments and converting your bankruptcy to a Chapter 7 does not make sense in your situation, there is always the option of allowing the court to dismiss your case and then refiling for another Chapter 13 bankruptcy once your financial situation improves.
• Refinancing debt – You may be able to refinance existing debt, such as a mortgage. Doing so could help you make your Chapter 13 bankruptcy payments more easily.
• Surrender property or collateral – In some instances, you may surrender property as a means of compensating for Chapter 13 bankruptcy payments you can’t make. However, you must carefully discuss this option with an attorney if you’re considering it. Sometimes, when a debtor surrenders property because they can’t make Chapter 13 payments, unexpected problems arise. For instance, maybe one of your debts is to Ford Motor Credit. You might try to address the debt by surrendering your vehicle to them. When you do, they could request that the automatic stay be removed from that debt, allowing them to sell off the vehicle and then pursue the deficiency from you. While that example doesn’t mean surrendering property is always a bad idea, this isn’t something you should do without first thoroughly reviewing your other options with an attorney.

These are among the most common options if you’re asking, What happens if I fall behind on Chapter 13 repayment plan payments? However, because it can be challenging to determine how to approach this issue without expert help, you should strongly consider working with a bankruptcy attorney if you find yourself unable to make Chapter 13 payments. They can review your case and determine the best option for you.

Factors Influencing Your Options

A range of factors can play a role in determining which options are available to you when you can’t make Chapter 13 bankruptcy payments. Examples include:

• The amount of debt – The amount of debt you owe and how far along you are in regard to paying it back can impact which options you have and which options the trustee or court will consider when working with you.
• The nature of the cash flow problem – Your inability to make Chapter 13 payments may be due to a temporary cash flow issue that’s likely to be resolved in the near future. If so, you may have a better chance of modifying your plan or deferring payments.
• Future earning potential – If you wish to modify your plan by reducing your payments, you’ll still have to make said payments according to a set schedule. That means you’ll need to have an income that allows you to do so. If your financial problem is dire and it’s unlikely to change in the foreseeable future, it can be difficult to convince a trustee or court to modify your plan in this capacity, as they might have reason to believe you won’t be able to continue making payments even after they’ve been reduced.
• Your own behavior – To some degree, those with the authority to modify your plan, defer payments, or help you in similar ways may consider the extent to which you’ve attempted to be financially responsible after filing for bankruptcy. If it appears that you’re unable to make payments because you haven’t been managing your money properly or seeking employment, they may be less inclined to offer flexible options.

These points highlight the value of coordinating with an attorney when you’re asking yourself, what happens if I fall behind on Chapter 13 repayment plan payments? A lawyer can help you demonstrate why you deserve to be given a chance to correct this issue in a manner that’s satisfying for everyone involved, including yourself.

How to Avoid Falling Behind on Chapter 13 Payments

Although you do have options if you’re unable to make Chapter 13 bankruptcy payments, ideally, you’ll never find yourself in this position in the first place. Ways to avoid falling behind on your payments include the following:

• Set a budget – It’s a simple tip, but an important one. Setting a realistic budget and living within your means is key to ensuring you’re able to make your Chapter 13 bankruptcy payments regularly.
• Stay employed – This is another basic tip that nevertheless deserves to be mentioned here. You need to have a consistent income to make Chapter 13 payments. Do everything you can to keep your current job, and actively seek employment if you’re currently without a job or you lose yours.
• Ask for help – If unexpected circumstances temporarily prevent you from making Chapter 13 payments on your own, you might be able to ask for help from a close family member or friend. However, you should only do so if you’re confident you’ll be able to pay them back in the near future, otherwise you’ll risk straining the relationship.
• Sell property – Many people file for Chapter 13 bankruptcy with the goal of protecting their property. That said, if you find yourself unable to make a scheduled payment, selling some form of property or liquidating an asset may be advisable in the long run. This is particularly true if you’re sure you’ll be able to make payments again in the future, but you have no other means of filling in the gap when you won’t be able to make payments, and the trustee won’t work with you to defer them.
• Set reminders – Although you might not expect this to be a particularly common issue, sometimes people fail to make Chapter 13 payments because they simply forget to. This isn’t an excuse that’s likely to influence a trustee or the court in any way that favors you. Avoid unanticipated problems by setting up reminders and/or automatic payments.

True, there may be instances that prevent you from being able to make Chapter 13 payments through no fault of your own. However, there are many steps you can take to prevent this from happening. Again, if you are unable to make payments, a trustee will be more motivated to help you out if you can show that you genuinely made an attempt to avoid this situation.

What Can Happen If My Chapter 13 Bankruptcy Case Is Discharged?

If you’re unable to make payments and your case is discharged as a result, the automatic stay that protected you from creditors and collection agents is no longer in place. As a result, they’ll be once again able to pursue what you owe them via debt collection lawsuits, repossession of property, foreclosing on your home, and garnishing your wages.

That doesn’t need to happen. You’re much less likely to face these consequences if you begin working with an attorney early when you know your ability to make Chapter 13 payments may be in jeopardy. Additionally, even if your case is dismissed, an attorney can help you refile for Chapter 13 bankruptcy or file for Chapter 7 bankruptcy if one of those appears to be the best option.

I Can’t Make a Chapter 13 Bankruptcy Payment: What Should I Do?

It’s uncommon for the inability to make Chapter 13 payments to take filers by surprise. If you’re going to be unable to make an upcoming payment, odds are good you already know this is the case.

If you expect you won’t be able to make a payment, contact your attorney right away. It’s important to be prepared in these circumstances. Unfortunately, some filers make the mistake of waiting until a Motion to Dismiss has been filed before taking action. When they do, addressing the problem can be much more difficult.

Contact Your Attorney Before You Miss a Payment

It’s best to contact your attorney even if you only suspect you’ll be unable to make a payment. True, you may later on discover that your fears were unfounded, but it’s always smart to err on the side of safety.

Make a Better Impression on Your Trustee

It’s also worth noting that contacting your attorney early can help you make a better impression on the trustee and the court if you do end up missing a payment. Before you miss said payment, your attorney may reach out to the trustee and court ahead of time to alert them to the situation. They’ll let them know why you believe you might miss a payment and what you’re doing to address the issue so that it doesn’t result in long-term difficulties.

By contacting the trustee and court early instead of allowing a missed payment to take them by surprise, you and your attorney will probably improve your chances of securing an ideal outcome. If you’re not proactive, it will be more challenging to convince the trustee and court to work with you.

Are you asking, what happens if I fall behind on Chapter 13 repayment plan payments? While falling behind in your Chapter 13 bankruptcy payments can be frightening, there are several solutions available.

Contact a Chapter 13 Bankruptcy Lawyer Before You Miss a Payment

If you are currently making payments for a Georgia Chapter 13 bankruptcy repayment plan and have fallen behind in making your payments, do not give up hope. The knowledgeable attorneys at the law firm of Morgan & Morgan, P.C. are here to help. To learn more, call (706) 752-7089.

This article was originally published in December 2019 and updated on August 17, 2021.

Lee Paulk Morgan

Lee Paulk Morgan

With more than 41 years of experience in the areas of Bankruptcy, Disability, and Workers’ Compensation, Lee Paulk Morgan is one of the most respected Bankruptcy and Disability attorneys in Athens, Georgia. His tireless dedication to serving clients has gained him the reputation of a premier attorney in his areas of practice, as well as the trust and respect of other legal experts, who often refer clients to him.