What if I Can’t Afford My Chapter 13 Payments?

Reviewed by Eric S. Brown, Esq.

Chapter 13 bankruptcy enables individuals to protect personal property, albeit through costly repayment plans. Should one find themselves unable to maintain payments, our esteemed Rockland County Chapter 13 Bankruptcy Lawyer can assist you in identifying what is in your best interest.

How Does Chapter 13 Work?

Chapter 13, alternatively termed a “wage earner’s plan” or reorganization bankruptcy, represents a legal recourse available to individuals possessing a consistent income. It facilitates the restructuring of personal finances and the repayment of outstanding debts over a period ranging from three to five years. The duration of the repayment scheme is contingent upon the individual’s income relative to the median income in New York: a three-year term is instituted if the income falls below the average, whereas a five-year term is applied if the income exceeds this threshold.

If your plan lasts for five years, you will end up likely end up repaying more than someone with a similar level of debt on a three-year repayment plan. Because of your higher income, creditors will seek more repayment from you if you make arrangements to repay debts during a bankruptcy proceeding.

This option garners significant favor due to its distinction from Chapter 7, as it precludes the liquidation of assets. Consequently, individuals are relieved from concerns regarding the seizure and sale of their assets to satisfy outstanding obligations. A trustee is designated to supervise your case, tasked with collecting payments and disbursing them to creditors in accordance with the established plan.

Can I Ask For a Longer or Shorter Repayment Plan?

It’s important to understand that the five-year repayment plan you are placed on is essentially what you will pursue for the duration of your bankruptcy case. Five years is the maximum length of time that a plan can last. You will be unable to extend the plan. Similarly, you cannot request a shorter, three-year plan instead.

However, if you are on a three-year plan, you have the option of extending it to a five-year plan. This would allow you to repay the same amount, essentially making payments smaller. It is important to keep in mind, however, that bankruptcy can remain on your credit report for a prolonged period of time, and extending your plan may have a longer impact on your credit, ultimately impacting your credit and subsequent ability to secure loans.

What Are My Options if I Can’t Afford My Chapter 13 Payments?

If you find yourself unable to afford your Chapter 13 payments, it’s crucial to act quickly, as ignoring the issues can result in serious consequences.

Chapter 13 bankruptcy is a reorganization plan, which essentially consolidates your debt into one monthly repayment. It is important to understand, however, that there is no built-in grace period for missed payments. Similarly, repeated late payments may place your case at risk of dismissal.

However, many trustees and bankruptcy courts understand that financial hardship can occur suddenly, so taking proactive steps can help reduce the risks associated with missed payments.

For personalized guidance and advocacy, contact a Rockland County bankruptcy attorney. They can evaluate your financial standing and advise on the optimal approach for your specific needs. Prompt action ensures a wider range of solutions to prevent the situation from escalating.

Steps to Take if You Anticipate Missing a Payment

• Contact your bankruptcy attorney as soon as possible
• Contact the Chapter 13 trustee prior to the payment date
• Explain the circumstances for the missed or late payment
• Prepare a plan to catch up on payments

Taking proactive steps when you anticipate missing a payment is critical, as it shows you have taken good-faith steps to remain compliant with your plan while also reducing the likelihood of adverse actions. This can also improve your chances of receiving court approval for any plan adjustments you may seek.

Potential Consequences of Missed Payments in Rockland County

Being late or failing to pay your monthly payment can result in a number of issues, though the outcome will ultimately depend on how often payments are missed and whether or not you took proactive measures. As such, potential consequences include, but are not limited to, the following:

• The trustee may issue a formal warning or request an explanation
• Accrued arrears may need to be promptly repaid
• The trustee may file a motion to dismiss as a result of material default
• The automatic stay protections may be lifted
• Collection efforts may resume

Why Case Dismissal Is Serious

If your bankruptcy case is dismissed due to missed payments, it can immediately end all protections and restore the rights of creditors to resume collections. This can lead to wage garnishments or liens, and no debts will be discharged.

Available Legal Options and Solutions

The following are some possibilities your attorney might explore to protect your case and help you stay in the good graces of your bankruptcy trustee and creditors:

• Payment Plan Modification: In some cases, you can modify your payment plan to reduce your monthly obligations. This will require filing a motion with the bankruptcy court, demonstrating a change in your financial circumstances. Through this court process, the trustee will review the proposed modifications, and payments may be reduced, or the duration of the plan may be adjusted within the legal limits. Situations that may qualify for plan modifications include:
  • Lost or reduced income
  • Increased living expenses
  • Increased medical expenses
  • Changes to household size
  • Unexpected financial hardship (sudden medical expenses, broken down care, etc.)
• Temporary Suspension or Deferral of Payments: If your inability to make payments is temporary, you may be able to request a temporary suspension or deferral of payment from the trustee assigned to oversee your case. This usually falls under the trustee’s discretion.
• Hardship Discharge: If you have suffered a significant and ongoing financial hardship that goes beyond your control, like a job loss or a serious medical condition, a hardship discharge may be granted. To be eligible, you need to prove that creditors have received at least what they would have received in a Chapter 7 case, that the hardship was unavoidable, and that your financial position is unlikely to improve. It’s important to understand that a hardship discharge is not common, as it is only available in limited circumstances and requires court approval. Additionally, not all debts are eligible for a hardship discharge.
• Case Conversion to Chapter 7: Bankruptcy: When you can no longer make your Chapter 13 payments, you may be able to convert your case to Chapter 7. However, this is only the case if you meet the necessary eligibility requirements, including passing the means test. Although this will stop payments, it also means that your non-exempt assets can be seized and sold to satisfy outstanding debts.

Can I Still Receive a Discharge if I Missed a Payment?

If you are ineligible for a hardship discharge, you may still be able to qualify for a discharge even after missing a payment, especially if the matter was quickly resolved. Discharges will remain possible if a missed payment was an isolated incident, arrears were promptly paid, and payments have resumed on a consistent basis.

What to Do After Multiple Missed Payments

Missing more than one Chapter 13 payment, however, can considerably increase the risk of case dismissal. However, prompt action improves your options. If you miss multiple payments, you should immediately speak to an attorney, contact your trustee, and gather documentation to support claims of financial hardship. You should also avoid ignoring any notices from the court or the trustee.

Contact an Experienced Rockland County Bankruptcy Attorney

For more information, please don’t hesitate to contact an attorney at The Lauterbach Law Firm. Our dedicated legal team understands how complex these matters are, which is why we are prepared to help you if you are struggling with your Chapter 13 payments or looking to file. Contact our New City firm today to schedule a consultation and learn how we can represent you to fight for the best possible outcome for your circumstances.