If you think you’re going to have trouble making your Chapter 13 bankruptcy payments, you’re not alone. While precise figures are difficult to obtain, it’s well known that many debtors do have trouble completing Chapter 13 plans.
However, if you’re in this situation you shouldn’t be afraid. Nothing terrible is going to happen to you. Let’s take a look at why Chapter 13 plans fail, and what your options are when they do.
Why Chapter 13 Plans Fail
Chapter 13 bankruptcies fail for three reasons.
First, they fail because the debtor either couldn’t afford the plan in the first place (it happens) or because there was some later disruption in income which threw the plan into a tailspin. As The Balance notes:
“Any disruption in the flow of income, like illness or job loss, will make it very difficult to get back on track. Children are born or their needs change (you can go from pregnancy to school tuition in five years). Marriages begin and end. It’s hard to go five years without credit, major car repairs, replacement of an appliance, insurance deductibles, emergency travel or even a vacation. Many of these items can be built into a Chapter 13 budget, but there’s really no room for savings. Creditors don’t like it when you hold on to money you could be paying to them.”
The second reason is people just grow tired. They grow tired for all the reasons outlined in the quote. They want their lives back, and holding on to the house or the car (the primary reason many people choose Chapter 13 bankruptcy) no longer seem quite so important.
The third reason? Filing Chapter 13 was a stalling maneuver in the first place, and the debtor simply needed time to enact some other strategy. The reasons why this might make sense could easily fill a different blog post on their own, so we’ll save it. For now, it’s enough to point out that it happens.
What are your options if you can’t complete your Chapter 13 plan?
There are a couple of possibilities. Your case could be dismissed. If it is, we may be able to get it reinstated for you.
If we can’t, your automatic stay lifts.
That means your creditors can come after you again, and it means all the negative actions you were trying to stave off could start happening again, including foreclosures, repossessions, and lawsuits.
If we can’t reinstate the case, we may be able to refile it. That gets you back on the plan, but your automatic stay only lasts for 30 days, allowing creditors to swoop in that much faster if you miss a payment again.
Many debtors will convert the case to a Chapter 7 at this point. They may lose the house, the car, or both…but they also may get a fresh start, a completely clean slate thanks to fully discharged debts. Many of our clients find themselves better off at this point.
Those who filed for strategic reasons will generally have had enough time to take whatever actions they needed to take. This group of debtors will typically just let the case go.
Whatever happens, you need an experienced attorney to see you through it.
Navigating these kinds of tough scenarios takes careful planning, an objective viewpoint, and sound legal advice. You should avoid trying to handle any phase of your bankruptcy case alone. Instead, contact the attorneys at Sadek Bankruptcy Law Offices for help. We’re here to make sure you and your rights are protected, and to help you move forward in this time of temporary financial distress.