What Happens if You Default on Your Chapter 13 Plan?

A Chapter 13 bankruptcy can be an effective way to bring debt under control while preserving your most important assets. It allows you to structure a plan for repaying a portion of your debt over a three- to five-year period, with the rest being discharged afterward. However, financial difficulties encountered during the life of the plan may lead to a failure to make your scheduled payments. While defaulting on payments can have significant consequences, there are options available that may allow you to put your Chapter 13 back on course.

Here’s what could happen if you fail to make payments under your Chapter 13 plan:

• Your Chapter 13 plan might not get confirmed — When you file for Chapter 13 bankruptcy and propose a plan, you must start making payments while the court decides whether to confirm it. The confirmation process can take several months, and delays in confirmation can occur if the trustee objects. You must stay current with your payments throughout this time.
• Creditors might be able to have the automatic stay lifted — Upon filing your bankruptcy petition, a stay goes into effect that prevents creditors from pursuing collection actions. If you default on your Chapter 13 plan payments, your creditors can ask the court for relief from the automatic stay, allowing them to resume collection actions such as foreclosure or repossession.
• Your Chapter 13 bankruptcy might get dismissed — Even though your repayment plan has been confirmed, the bankruptcy trustee may request the court to dismiss your case if you default. A dismissal means you will again be subject to creditors’ collection actions.

Fortunately, there are options available to help you salvage your Chapter 13 case, such as the following:

• Cure the default — You can ask the court for additional time to catch up on your missed payments. This usually can be allowed if you’ve experienced a temporary financial setback and can demonstrate your ability to make up the arrears.
• Modify your Chapter 13 plan — You can seek a modification if your financial circumstances change during the plan, such as a reduction in income due to a pay cut. The court may agree to lower your monthly payment.
• Convert to Chapter 7 or request early discharge — If you can no longer afford your Chapter 13 plan, you may qualify for conversion of the case to a Chapter 7 bankruptcy. Alternatively, you might be eligible for an early Chapter 13 discharge based on hardship.
• Refile your Chapter 13— If your case is dismissed, you can refile immediately except in certain limited circumstances. However, the automatic stay will be limited to 30 days if the new Chapter 13 is filed within a year of your previous case, unless the court extends it.

Jeff Field & Associates in Newnan helps consumers throughout Georgia discharge eligible debt through Chapter 13 bankruptcy. We have offices in Bogart, Gainesville, Marietta, Lawrenceville, Douglasville and Decatur. To schedule a personal consultation, call 404-381-1278 or contact us online.