What Happens If You Don't Make Your Chapter 13 Plan Payments?

Failing to make payments during a Chapter 13 case can have many unfortunate consequences. The Chapter 13 trustee responsible for your case will file a motion asking the bankruptcy court to dismiss it. If you can't bring payments current in short order, the bankruptcy judge will grant the motion and your creditors will resume collection actions.

Also, if you fall behind on payments for your mortgage or car loan during your case, the lender can ask for permission to foreclose on the house or repossess the car during the Chapter 13 case, or wait to proceed after dismissal. Learn more about what might happen if you fall behind on Chapter 13 repayment plan payments and options to save your bankruptcy.

Consequences of Not Making Payments During Chapter 13

If you fail to pay the required payments through the Chapter 13 plan or outside of the plan, here's what could happen.

The Bankruptcy Judge Might Not Approve Your Plan

You aren't automatically qualified for Chapter 13 when you file. The bankruptcy court must first approve or "confirm" your proposed Chapter 13 plan at a confirmation hearing which typically occurs several months after the filing.

The waiting period allows creditors and the Chapter 13 trustee appointed to administer the case to review the proposed Chapter 13 plan to determine whether it pays the amount creditors are entitled to receive.

Even so—and many people are surprised by this—you must begin making Chapter 13 payments approximately 30 days after filing the case before the bankruptcy court confirms your plan. The early start is necessary to ensure the case is completed within 60 months—the longest time a Chapter 13 case is allowed to last.

If you don't begin paying the proposed payment when required, the trustee would likely object to the confirmation of the proposed Chapter 13 plan based on an apparent inability to fulfill the payment requirement. The judge would decide whether to dismiss the case on those grounds.

Creditors Might Reclaim Property

If your plan requires you to make payments on "secured" debts—those guaranteed by collateral, such as a car or home—and you don't make the payments, you could lose the property. The lender will likely file a motion asking for permission to recover the property due to a failure to abide by the Chapter 13 plan.

Although the court initially establishes an "automatic stay" to stop creditor collections, the stay is replaced by the Chapter 13 plan once it is confirmed because it operates like a new contract. By contrast, if the lender wanted to recover property due to nonpayment or another contract breach before the court confirmed the Chapter 13 plan, the lender would file a motion asking the court to lift the automatic stay to allow foreclosure or repossession.

Your Chapter 13 Bankruptcy Might Get Dismissed

If the court confirms your case and you stop making your Chapter 13 payments, you'll risk the court dismissing your case without "discharging" or eliminating qualifying debt. You'll receive credit for amounts paid, but creditors can assess any interest that would have accrued had you not filed for bankruptcy.

Options for Saving a Chapter 13 Bankruptcy

Running into financial troubles during the Chapter 13 process is not uncommon. If you default on your Chapter 13 payments, the court won't automatically dismiss your case. The trustee must first file a motion requesting a dismissal. Until that occurs, you can try the following options to salvage your bankruptcy.

Catch Up on Your Payments

You know when you've missed a payment, and likely, the first thing you'll do is reach out to your bankruptcy attorney to explore your options. Your lawyer will ask when you can make up the missed payment and reach out to the trustee informally to buy you time.

Most trustees will give you a month or two leeway before filing a motion to dismiss with the court. However, you'll need to pay extra to cover any interest and late fees a lender assesses because the trustee didn't have the funds for the month. Otherwise, these fees will accumulate, and you will still be behind at the end of your plan.

Ask the Court for More Time

If the Chapter 13 trustee moves forward and requests the dismissal of your case, you can still ask the court for more time to catch up on your missed payments. This option is easiest if you missed a few payments due to an emergency, but you're now back on track and can begin to cure your arrearages.

Most trustees and judges will grant you additional time if you can show that you can make up your missed payments. It likely won't be an option if your income has declined and it's not feasible for you to catch up.

Modify Your Chapter 13 Plan

If your circumstances have changed since filing the bankruptcy, for example, if your income decreased due to a pay cut, you might be able to ask the court to modify your plan and reduce your monthly payments. However, this might not be possible if all you are paying through the plan are priority debts and secured debts on property you don't wish to surrender. Because you must pay these debts in full, the court won't be able to lower your Chapter 13 plan payments.

Convert to Chapter 7 or Request Early Discharge

You might also be able to convert your bankruptcy from Chapter 13 to Chapter 7 and receive a discharge without making any further plan payments. To do this, you must show that you qualify for Chapter 7 bankruptcy because you can no longer afford Chapter 13.

However, you'll likely lose any property you were paying to keep because you couldn't fully protect the equity with a bankruptcy exemption. Chapter 7 also doesn't provide a way to pay nondischargeable priority debts, like support obligations and tax debt, so you'll remain owing those after receiving a Chapter 7 discharge. You can't cure home, vehicle, and other secured debt arrearages, so if you're behind on a mortgage or car payment, the lender will likely resume foreclosure or repossession.

If you've already paid creditors as much as they would receive in Chapter 7, you can avoid conversion and request an early Chapter 13 hardship discharge. However, this option is rarely available unless you're close to the end of your Chapter 13 case.

File Chapter 13 Bankruptcy Again

In most cases, you can refile Chapter 13 immediately following dismissal. But you might be barred from refiling for six months if you disobeyed court orders or voluntarily dismissed your prior case after a creditor obtains relief from the stay. The second scenario usually occurs when Chapter 13 is filed to avoid foreclosure and dismissed when the lender seeks court permission to proceed with the foreclosure.

Also, the automatic stay afforded by your subsequent bankruptcy will be limited to only 30 days if filed within a year of your previous one, so you must ask the court to extend it. It won't be put in place at all if you file twice within the same period. Learn more about multiple bankruptcy filings.