Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
Key Takeaways
- There is no grace period, but one missed payment rarely ends a case.
- Your plan can be modified to lower payments or extend the term.
- A hardship discharge is available only where modification would not work.
- You can convert to Chapter 7 at any time, and that choice is yours.
A Chapter 13 bankruptcy may also be casually called a “wage earner’s bankruptcy” because it allows debtors with regular income streams to develop a plan to repay all or part of their debts. The Chapter 13 repayment plan may be considered a privilege you should not take for granted. Meaning, you must dutifully abide by it and make all your scheduled payments on time. Follow along to find out how late you can possibly be on a Chapter 13 payment and how a proficient Rockland County Chapter 13 bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., P.C. can help you avoid its potential consequences at all costs.
How Late Can I Be on a Chapter 13 Payment?
You must understand that there is no formal grace period when it comes to payments for the Chapter 13 repayment plan. Generally, you may have 30 days from the date on which you filed for Chapter 13 bankruptcy to make your first payment. From here, you may be expected to make biweekly or monthly payments, depending on the payment schedule implemented by the federal bankruptcy court. Lastly, you may be expected to make these payments for the next three to five years, again, depending on the schedule the court approved.
What are the Consequences of Being Late on a Scheduled Payment?
Failing to pay for a single scheduled Chapter 13 repayment may not necessarily be the end of the world. This is because if it simply slipped your mind or you had a particularly difficult time with your finances one month, you may be able to easily rectify the issue in the next month.
However, problems may begin to arise once you miss two or three scheduled payments.
That is, being this far behind on your scheduled payments may prompt your bankruptcy trustee to file a Motion to Dismiss. Specifically, a Motion to Dismiss means that your Chapter 13 bankruptcy proceedings may be terminated at once. Subsequently, your bankruptcy dismissal may come with any or all of the following consequences:
- You may no longer be protected by an automatic stay, so your creditors may resume their collection activities.
- You may no longer qualify for a discharge of your debts, so you may now be held responsible for paying them off in full.
- You may no longer be relieved of any penalties or interest imposed on your debts, so you may now be held responsible for paying them off in full.
What Do I Do if I Have Already Fallen Behind on Payments?
Dismissal is not the only option if you miss a payment, and it is rarely the first option your attorney will pursue. The Bankruptcy Code provides three routes, and which one is right will depend on whether your problem is temporary, permanent, or somewhere in between.
Modify the Plan
After confirmation and before your final payment, the plan may be modified to reduce what you pay each period, extend the amount of time you have to pay, or both. This is the ordinary course of action for changes in circumstances, like reduced hours or a new medical expense. You should note that this also runs both ways: your trustee or an unsecured creditor may request that the court modify your plan, typically upwards, if your income improves.
Request a Hardship Discharge
In the event you genuinely cannot complete your repayment plan, the court may grant a hardship discharge, which discharges certain debts without the completion of your plan. However, for this to occur, three things must be true:
- The failure must stem from circumstances you should not justly be held accountable for
- Your creditors must have received at least what they would have received from Chapter 7 liquidation
- Modifying the plan is impracticable
Note the sequence there. Because a hardship discharge requires that modification would not work, it is the fallback rather than the opening move.
Convert to Chapter 7
You may convert your Chapter 13 case to Chapter 7 at any point, and that is ultimately your decision rather than the court’s. A trustee or creditor may also ask the court to convert the case rather than dismiss it, which may be the better outcome. The trade is that a Chapter 7 trustee may sell property you are not able to exempt, so this is a decision to make with counsel rather than by default.
One Caution About the Hardship Route
A hardship discharge is narrower than the discharge you would earn if you finished your plan. It leaves in place each category of debt listed as nondischargeable elsewhere in the Code, in addition to the long-term obligations your plan was curing, like a mortgage that outlasts the plan. Completing your payment results in a broader discharge than any shortcut will.
Contact an Experienced New York Bankruptcy Attorney
Of note, this may all be avoided if you simply speak with your trustee whenever you anticipate an upcoming missed or late payment. Importantly, you must have this conversation with a legal representative by your side. In conclusion, if you believe you need a nudge in the right direction, you should feel comfortable turning to a talented Rockland County bankruptcy attorney with The Law Offices of Allen A. Kolber, Esq., P.C. With that being said, do not hesitate to contact our firm today to discuss your circumstances with a member of our team.
