What happens if I default on chapter 13 bankruptcy payments?

All Chapter 13 debtors are required to file with the bankruptcy court a Chapter 13 plan which sets forth their proposal for repaying their debts.  Generally, the Bankruptcy Code requires that a Chapter 13 debtor commit 100% of his net disposable income for payment into the plan for a three to five year period.  Most Chapter 13 debtors make their plan payments via income deduction from their paycheck each pay period. 

If a Chapter 13 debtor falls behind on this payments and does nothing to bring those payment current or to otherwise address the problem, his case will eventually be dismissed.  Once a Chapter 13 debtor’s bankruptcy case is dismissed, he will return to his pre-bankruptcy status with his creditors.  This means that his creditors will be free to pursue all legal collection remedies against him. 

If a debtor becomes unable to make his Chapter 13 plan payments because of increased expenses or decreased income, he may be able to modify his Chapter 13 plan or suspend his Chapter 13 plan payments.  In order to modify a Chapter 13 plan or suspend the plan payments, a Chapter 13 debtor must file the appropriate motion with the bankruptcy court. 

In certain instances, a debtor’s circumstances may have changed so drastically as to make it impossible for him to complete his Chapter 13 plan.  In such cases, the debtor may be eligible for a hardship discharge.  Even if a Chapter 13 debtor receives a hardship discharge, he will continue to be liable for certain debts including: 

• Certain taxes;
• Domestic support obligations;
• Student loans; and
• Certain long term debts, such as mortgages and auto loans.

If you have questions about obtaining a hardship discharge or modifying or suspending your Chapter 13 plan payments, you should speak with your bankruptcy attorney immediately in order to avoid dismissal of your case.