Your Options if You Can’t Make Your Chapter 13 Payments

The core of a Chapter 13 bankruptcy is the debtor’s ability to pay creditors back a portion of what is owed them. The debtor promises to make monthly payments for a specified period of time, which are determined based on the debtor’s available income sources. If all goes well, the rest of the outstanding debt is discharged. But during that repayment period, things can go off track. A job loss or an unexpected medical emergency can impact the debtor’s ability to make payments. What happens then?

If you are a Chapter 13 debtor having trouble making your payments due to an unexpected setback, your first step should be to contact your attorney to get ahead of the problem. Your attorney can determine a strategy for negotiating with the Chapter 13 trustee. You’ll want to open a dialogue with the trustee early on, because the more payments you miss, the harder it is to fix the problem.

With your Chapter 13 attorney and the trustee engaged, there may be a variety of options available to resolve the payment defaults, such as:

• Catching up on payments — This is a good option for debtors who had a temporary loss of income but are now back on track. It works best when the trustee hasn’t moved for dismissal, but many trustees will withdraw a filed motion if you can catch up.
• Abatement — This means asking for permission to delay payments temporarily. It only works if your plan is paying back unsecured creditors. If you have secured creditors, a plan amendment is needed.
• Amending your plan — You can ask the court to modify the Chapter 13 plan to reduce your payment amount. Be aware that achieving a lower payment could mean surrendering property, like a home, that you had previously wanted to keep.
• Hardship discharge — This option, which cancels remaining unsecured debts, is available only if the court finds your circumstances have changed so much that you cannot resume your payments.
• Conversion to Chapter 7 — If you qualify, you could convert your Chapter 13 to a Chapter 7 and have your unsecured debts eliminated. But this will not eliminate priority debts or mortgage arrears.
• Dismissing and refiling — It could make sense to allow your current case to be dismissed and then refile later, after your finances improve.

The key to successfully resolving a Chapter 13 default is to act promptly. Don’t wait until the trustee comes after you and moves to dismiss your case. Most trustees will not file a motion after one missed payment, but many trustees seek dismissal after two missed payments and almost all do so after three.

If you are concerned about defaulting on your Chapter 13 payments, contact the Law Offices of Michael Jay Berger in Beverly Hills. My team of attorneys will explain which options might work for you and will take swift action to pursue the right one. Call 310-271-6223 or contact me online for a free consultation.