For many, bankruptcy is not something that is taken lightly, for both the consumer and the filer. As such, you may be relieved when your Chapter 13 bankruptcy goes into effect, offering you additional relief from creditors. However, if something happens and you realize you’ve missed a Chapter 13 payment, understanding the consequences you can face is critical. If this represents your circumstances, you’ll want to keep reading to learn how a Memphis, TN Chapter 13 bankruptcy lawyer can help you navigate these complicated issues.
How Chapter 13 Bankruptcy Works in Tennessee
When you file for bankruptcy, you generally have two options as a consumer. The first is Chapter 7, which involves liquidating your assets to repay creditors. This is the faster option, but your non-exempt assets are at risk during this process. Additionally, you must meet the income requirements for this option. Essentially, you must make less than the median income for households of your size in Tennessee to qualify. If you do not meet the minimum requirements to file for Chapter 7, you can pursue a Chapter 13 filing.
Chapter 13 bankruptcy is a reorganization plan that involves making a monthly payment to your bankruptcy trustee, who will then allocate those funds to creditors. This monthly repayment plan will last three to five years, and once completed, your remaining eligible debts will be discharged.
Key Features of a Chapter 13 Repayment Plan
- Your monthly payment is based on your disposable income
- The trustee assigned to your case disperses the funds to your creditors
- You will receive protection under the automatic stay, thus halting collection efforts
- A missed payment can jeopardize your case
- Completion of your payment plan can result in the discharge of eligible debts
Will My Trustee Know If I’ve Missed a Chapter 13 Payment?
When you accidentally miss a payment date for Chapter 13, you may think nothing of it. After all, everyone makes mistakes, and the court may not even notice, right? Unfortunately, missing a Chapter 13 payment can have a drastic impact on the outcome of your case. Your trustee will regularly monitor your case to ensure compliance with the payment plan.
Possible Outcomes After a Missed Payment
- The trustee may request an explanation or proof of hardship
- Your case may continue if you can quickly make the payment
- Your case may be more closely monitored moving forward
- Repeated missed payments can lead to a Chapter 7 conversion or dismissal of your case
What Can Happen if My Chapter 13 Payment Is Missed or Late?
It’s important to understand that a late and missed payment are two different things during bankruptcy. A late payment is generally made within the original billing period, but after the payment due date. However, a missed payment occurs when a full billing cycle has passed without the payment being made.
If you miss a Chapter 13 payment, you can anticipate serious trouble. However, the consequences you can face will depend on the trustee assigned to your case, the reason for the missed payment, whether or not you’ve missed payments in the past, and how quickly you inform the trustee of your circumstances.
Common Court or Trustee Action
If your payment is missed or late, you may be subject to one of the following actions:
- Case Dismissal: The automatic stay will be lifted, creditors may resume contacting you, and you will not receive debt relief
- Case Conversion to Chapter 7: Your non-exempt assets may be liquidated to repay creditors
- Plan Modifications: In instances where undue hardship is present, the court may approve a lowered monthly payment
It’s important to understand, however, that the exact outcome will depend on the unique circumstances of your case and your trustee.
What Happens if My Chapter 13 Case Is Dismissed?
In the event you miss a payment and your case is subsequently dismissed, understanding what you can expect is critical. This means you are no longer eligible to have debts discharged, and the automatic stay you were granted will be lifted, meaning creditors are free to pursue collection efforts against you again.
Effects of Case Dismissal on Debtors
- Automatic stay is lifted, and creditors may resume lawsuits and garnishments
- You will continue to owe outstanding debt balances
- You may be unable to file for a period of time based on your circumstances
Can My Case Be Converted to Chapter 7?
If you are no longer able to meet your Chapter 13 monthly payment in Memphis, you may wonder if you can convert your case to Chapter 7. This is an option, though it does come with certain risks and requirements.
What Conversion to Chapter 7 Means
- Your non-exempt assets may be liquidated to repay debts
- Some debt may be discharged more quickly
- Secured property may be at increased risk
- You must pass the means test in order to qualify
Can My Chapter 13 Payment Be Reduced or Modified
It’s important to understand that, if your circumstances change and you are unable to meet your monthly obligation, the court will not automatically reduce or change your payments. Instead, you must petition the court by filing a formal motion.
Situations Where Modification May Be Considered
- Loss of income or reduction in hours
- Unexpected medical expenses
- Cost-of-living hardship
- Long-term changes impacting the ability to pay
It’s important to understand that the Western District of Tennessee, which is responsible for handling bankruptcy cases in and around Shelby County, will ultimately be responsible for determining whether or not to grant a modification based on the context surrounding your case.
What Should I Do if I Realize I Missed a Chapter 13 Payment?
If you realize that you missed your Chapter 13 payment, the most important thing you can do is immediately contact both your attorney and your bankruptcy trustee. In general, the sooner you can inform them of the circumstances and seek a remedy, the better your chances of continuing your payment plan are.
Steps to Take Immediately
- Contact your Chapter 13 trustee as soon as possible
- Explain the reason for your missed or late payment
- Make a payment, if possible
- Provide documentation if job loss or medical emergencies are the cause
Contact an Experienced Memphis, TN Bankruptcy Attorney
As you can see, missing a Chapter 13 payment can have drastic impacts on your case. That’s why it’s in your best interest to connect with an experienced attorney who can help guide you through these complicated times. At the Arnold Law Firm, we understand that this process can be overwhelming, which is why we are here to assist. We can guide you through bankruptcy to help minimize errors that could impact the outcome of your case. When you need help, contact our team today.
