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What Happens If You Miss a Payment in a Chapter 13?

Breaking down the law in Indiana

A Chapter 13 bankruptcy case is often referred to as a “wage earner’s plan.” As described by the United States Courts, the Chapter 13 bankruptcy process allows a person who has regular income to roll much of their debt into a single (affordable) monthly payment. In most cases, Chapter 13 repayment plans will last for 36 to 60 months.

Once all the scheduled Chapter 13 payments have been made, you will get a discharge order and the remaining balance of the debt will be wiped out. But what happens if you miss a Chapter 13 bankruptcy payment? The short answer is that your Chapter 13 case could go into default, and you would need to take immediate action in Bankruptcy Court to fix the problem.

A Motion to Dismiss for Material Default

To get your final Chapter 13 bankruptcy discharge, you have to complete your payment plan. If you fail to do so, there are going to be serious problems. All of the debt that was rolled into a single monthly payment could become due. Under 11 U.S. Code § 1307(c), of the Bankruptcy Code, a Chapter 13 bankruptcy trustee can file a Motion to Dismiss for Material Default if there is a failure to make payments in a timely manner.

In other words, if you miss a Chapter 13 payment, you are technically in breach of the plan. The trustee has the power to file to default your plan and move out of the Chapter 13 bankruptcy process.

Be Proactive

Missing a Chapter 13 payment is a serious issue. At the same time, very few bankruptcy trustees are going to file a motion to dismiss against you over a single late payment. As a general rule, it takes two or three missed payments before action is taken to default a Chapter 13 bankruptcy plan. Still, you cannot guarantee that you will have that much time to act.

Here are two actions if you cannot make a Chapter 13 plan payment:

  1. Try to Anticipate the Shortfall: If you cannot make your Chapter 13 payment, you may be eligible to modify the plan. Chapter 13 plans can be modified if you have good cause—such as a loss of income or other change in your financial situation.

  2. Cure or Limit the Default: Try to not fall behind on your Chapter 13 payment plan. Pay as much as you reasonably can to cure or limit the default. If the burden is too high, try to limit how much you fall behind and then call a lawyer for help modifying the plan.

Professional help is available. If you missed a Chapter 13 payment or you have general questions about the process, contact a law firm or an experienced Indiana bankruptcy attorney for immediate assistance. A skilled bankruptcy lawyer can offer legal advice and help you take action to cure the default and/or modify the terms of your Chapter 13 repayment plan. Many law offices and attorneys offer a free consultation

For more information, see our overview of bankruptcy law.

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