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FAQs About Failing To Make Payments On A Chapter 13 Repayment Plan

by Barry Webb

The repayment plan is one of the requirements of a Chapter 13 bankruptcy filing. Under the plan, you would make payments to a trustee, who would then disburse those payments to your creditors. Unfortunately, financial hardships can sometimes occur and make it difficult to make the payments as agreed. If you are unable to make your payments, here is what you need to know. 

What Happens If You Do Not Make Payments?

After a payment is missed, the bankruptcy trustee can ask the court to dismiss your filing. If that happens, you will lose all protections you gained from the bankruptcy. 

For instance, your creditors can take you to court and try to collect on the debts you owe. You could lose your home, car, and other assets that are tied up with your debts. 

What Can You Do?

If you are unable to make a payment, you need to act quickly. If your financial situation is not going to last a long time, you can ask the court to temporarily suspend your payments. Once the suspension period ends, you are expected to start making payments on time. 

Unfortunately, some financial hardships last longer than expected. If that applies to your situation, you can choose to ask the court to lower the amount of your payments until you are able to pay more or convert your Chapter 13 filing. 

If you want the Chapter 13 payments lowered, you must submit a new proposal for making payments to the court. Whether or not the proposed repayment plan is acceptable is up to the court. If it is, you have to start making payments by the agreed-upon day at the new amount. 

When the Chapter 13 filing is converted, it becomes a Chapter 7. Under a Chapter 7, you are no longer responsible for making payments on your debts. Some or all of your debts will be dismissed. 

Will You Lose Your Assets If the Bankruptcy Is Converted?

If you do opt for the conversion, there is no guarantee that your assets will be safe. In a Chapter 7 bankruptcy, assets are seized by a trustee and sold to pay off your debts. Whether or not you can save any of your assets depends on how you apply your exemptions. 

Exemptions allow you to save assets that total up to a certain dollar amount. How exemptions can be applied and how much you can receive varies by state. 

To learn more about the exemptions and explore your options for handling an inability to pay on your Chapter 13 repayment plan, consult with a bankruptcy attorney. 

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