After filing for Chapter 13 bankruptcy, you must make prompt, scheduled payments until your agreed upon plan expires to stay in compliance. If you fall behind on Chapter 13 payments, creditors can request the court dismiss your bankruptcy case, putting your financial future in further jeopardy.
Fortunately, there are some steps you can take to prevent further negative impacts to your finances. At O'Bryan Law Offices, we can walk you through the bankruptcy process and help you get back on a path to a debt-free future. Call us today to find out how a Louisville bankruptcy lawyer can offer thoughtful solutions for financial matters.
How Do Chapter 13 Bankruptcy Payments Work?
Chapter 13 bankruptcy, which is sometimes called a reorganization bankruptcy, allows you to get on a plan to re-pay those you owe. In general, payment plans last between 36 and 60 months. If you are late on a payment or miss one, you likely won't run into trouble if you contact your trustee or creditors and make an effort to get caught up on payments. You can expect trustees or creditors to request a bankruptcy case dismissal if you miss three payments or more and make no effort to explain what caused you to fall behind on Chapter 13 payments.
What Happens If the Court Dismisses Your Case?
When you file for bankruptcy, the court issues an automatic stay. This immediate stops creditors and other entities you owe from taking collection actions and filing civil lawsuits against your property. In many cases, the protection that automatic stays offer will compel individuals to file for bankruptcy. These stays can protect you from getting evicted, losing your house, or take other aggressive actions.
If you fall behind on Chapter 13 payments and the court dismisses your bankruptcy case, you lose that protection. Therefore, any party you owe can:
- File a lawsuit against you
- Send collection letters
- Repossess your property, like cars, boats, or jewelry
- Foreclose on your home
- Ask that a percentage of your wages be garnished.
Steps to Take Before You Get to a Dismissal
If you spoke with your trustee and got nowhere, you can take these steps if you are in danger of getting your case dismissed:
File a Written Opposition to the Court
If your trustee or creditors are unreasonable, file a written opposition to the motion to dismiss. In the opposition letter, you will need to explain why you missed payments and further argue your case at a hearing. Be prepared to explain:
- How you plan to get payments current,
- Why you won't get in the arrears in the future, and
- How much time you need to get it done.
Ask for a Repayment Plan Modification
If you got behind on Chapter 13 payments because you had a major financial emergency, such as a job layoff, you can ask the court to reduce the amounts of your repayments. In your request, you will need to show proof of your emergency and propose a new payment amount. Remember, if your existing repayment plan includes debts that must be paid in full, such as child or spousal support, the court cannot modify your plan.
Switch to Chapter 7 Bankruptcy
Converting your Chapter 13 to a Chapter 7 won't wipe out priority debts, like spousal support, or allow you to get current on mortgage payments. But it will offer some debt relief. Under Chapter 7, your trustee can sell your non-exempt property to satisfy your creditors. The proceeds from the sales wipe out all qualifying debt. Items often considered non-exempt are:
- A second vehicle
- A vacation home
- Antiques, paintings, and valuable collections, like rare coins
- Bonds, stocks, and investments
- Inherited items, like jewelry or artwork
If all of these efforts fail and your case gets dismissed, you can get the opportunity to file for Chapter 13 again. Dealing with creditors and the potential risks that come with not paying them what they are owed can be overwhelming. In these cases, a bankruptcy attorney can help you weed through the best options.
Contact a Louisville KY Bankruptcy Attorney Today
If you are behind on Chapter 13 payments, speak to a Louisville bankruptcy lawyer at the O'Bryan Law Offices.