What If I Am Late on My Chapter 13 Payments?

Trustee Notice

Chapter 13 cases can last from three to five years. During that period of time, the debtor must give all of his disposable income to the trustee on a monthly basis. Disposable income is the amount of money left over after paying for necessary living expenses and paycheck deductions for items such as taxes and social security benefits. If an unexpected expense comes up, the debtor may have difficulty submitting the trustee payment on time. Initially, the trustee may send a notice to the debtor and the debtor's attorney stating that he hasn't received the payment. If the debtor is able to send the payment a few days late, he should notify his attorney of the situation and submit the payment as soon as possible.

If a debtor has a history of submitting late payments, the trustee may require that the debtor have the payments automatically deducted from his paycheck. The debtor's employer will receive a court order requiring garnishment in the amount of the monthly payment along with the trustee's name and address. If a debtor is having difficulty remembering to mail the trustee payments, he may choose to voluntarily set up a payroll deduction. In some court districts, payroll deduction of the trustee payments is mandatory. Ultimately, the debtor is responsible for making sure the trustee gets the payments, so he should review his pay stubs and contact his attorney or the trustee to confirm receipt of payments.

Sometimes a debtor experiences a substantial change in his finances during the bankruptcy case. The debtor can modify his Chapter 13 payment plan if his living expenses increase or if there is a reduction in income. The debtor's attorney can propose a payment plan extension, but the payment plan cannot last longer than five years, as stated in 11 U.S.C. §1329. The amount of money paid to certain creditors can also be lowered in some cases. The bankruptcy court needs to approve the plan modification before the monthly trustee payments can change.

When the debtor misses successive payments or shows a pattern of being late with payments, the trustee will file a motion to dismiss the case. Failure to make the payments on time is a violation of the debtor's duties in the bankruptcy and a valid reason to for case dismissal. If the debtor is not able to become current with the payments or cannot reach a new payment agreement with the trustee prior to the motion's hearing date, the court may grant the motion. Once the case is dismissed, the debtor is no longer protected by the bankruptcy and creditors can start attempts to collect payment for their respective debts.