What happens if I fall behind on my chapter 13 payments?

If you miss payments on your chapter 13 plan, you risk being dismissed from your bankruptcy case, or in more unusual circumstances converted to chapter 7. If your case is dismissed, your creditors will be able to resume efforts to collect from you, and you will not receive a bankruptcy fresh start. If a case is converted, a chapter 7 trustee will be appointed to sell your non-exempt property and pay your creditors.

The exact procedure used by a chapter 13 standing trustee in event of non-payment by a debtor varies somewhat amongst different courts and trustees. In general, the trustee will file a motion to dismiss, which asks the bankruptcy judge to enter an order dismissing the case. The extent of a court hearing on this motion to dismiss will vary, but in all situations they are very common motions that are routinely granted on the request of the trustee. Occasionally, confirmed plans will have provisions for automatic dismissal without any further notice or hearing.

It may be possible to catch up a missed payment and continue in your plan. If you have fallen behind in your chapter 13 payment, you should tell your bankruptcy attorney about your present financial situation, and your attorney can attempt to work out a payment agreement with the trustee. In some situations, missed payments can simply be caught up without much hassle, while in other cases it may be necessary to formally modify the chapter 13 plan. Formal modifications of plans can increase the cost of your plan and result in additional attorney's fees.

Conversion to chapter 7 is much less common than dismissal following missed chapter 13 payments. If your case has significant assets that could be sold for benefit of creditors, a trustee's motion to convert becomes much more likely.