You filed Chapter 13 bankruptcy to stop collection pressure and get control of your finances. Then something changes. Your work hours get reduced, a medical emergency happens or your monthly expenses rise faster than expected.
If you start missing Chapter 13 payments, you may worry about losing the protections that bankruptcy gave you. In some situations, falling behind on payments can lead to dismissal of the bankruptcy case, which may allow creditors to restart collection efforts. Still, the court may allow certain solutions before that happens.
How Chapter 13 bankruptcy protects you from creditors
Chapter 13 bankruptcy creates a court-approved repayment plan based on your income, debts and property. Instead of paying creditors directly, you will make monthly payments to a bankruptcy trustee, who distributes the money according to the repayment plan.
While your bankruptcy remains active, the automatic stay will usually stop many collection actions. That protection may help you prevent foreclosure, stop wage garnishment, avoid vehicle repossession and catch up on overdue mortgage or car payments over time.
What falling behind on payments could mean for your bankruptcy
The bankruptcy trustee will monitor whether you remain current on your repayment plan. If you fall behind, the trustee may file a motion asking the court to dismiss your Chapter 13 bankruptcy. Before deciding whether to dismiss the case, the court will usually review issues such as:
- Missing required monthly payments
- Experiencing a temporary loss of income
- Trying to catch up on overdue amounts
- Failing to respond to trustee notices
If the court dismisses your bankruptcy, the automatic stay will end and creditors may restart collection efforts. Those actions could include foreclosure proceedings, wage garnishment, repossession or debt collection lawsuits.
Possible ways to keep your bankruptcy active
Depending on your financial situation, the court may allow changes to your Chapter 13 repayment plan. For example, if your income dropped because of reduced work hours, job loss or a medical condition, you may qualify for lower monthly payments through a plan modification.
Some people may also receive additional time to catch up on missed payments. In other cases, converting the bankruptcy to Chapter 7 may become a more realistic option if continuing the repayment plan is no longer financially possible. The available solutions will depend on your income, assets and the length of the financial hardship.
Financial setbacks during Chapter 13 can create serious risks
Chapter 13 repayment plans last several years, and financial problems can happen during that time even if you started the bankruptcy with a stable income. Falling behind on payments can place your bankruptcy protections at risk, especially if the missed payments continue to grow.
In some situations, the court may still allow adjustments that help you keep the bankruptcy active. The outcome will usually depend on the reason for the missed payments, how far behind you are and whether the financial hardship appears temporary or long term.