Chapter 13 Process

• When you file for Chapter 13 protection, the bankruptcy trustee subtracts all your necessary monthly expenses from your monthly income. The balance is what you must dedicate to repayment of your debts over the next three to five years. A Chapter 13 bankruptcy prevents your creditors trying to collect from you during this time. Each month, you must pay the trustee the equivalent of your disposable income, and the trustee divides that payment up so that each of your creditors receives a portion of it. Generally, at the end of the repayment plan, they receive somewhat less than the total you owed them before you filed for bankruptcy. You can't take on new debt while you're in a Chapter 13 bankruptcy proceeding.
  
  

Missed Payments

• If you attempt a Chapter 13 repayment plan but find that you cannot make the payments, and if you miss even one, your creditors have the right to petition the bankruptcy court for dismissal of your case. They don't have to do this collectively; even one of them can file a petition for dismissal. If that petition is successful, the judge will dismiss your Chapter 13 protection. This is called "failing out" of your plan, and it invalidates the stay preventing your creditors from trying to collect from you. They can resume efforts to force you to pay them the full amount due. In some cases, this can occur in just a few days.
  
  

Options

• You have three options if you know you're about to fail out of your Chapter 13 plan. You can ask the bankruptcy court to modify your monthly payment because it is too much and you can't afford it. This generally only works, however, if your income has dropped since you committed to the plan. If you've suffered severe economic hardship and can now qualify for the Chapter 7 requirements, you may be able to convert your Chapter 13 bankruptcy to a Chapter 7 and eliminate your debts entirely rather than repaying them. You can also apply for an early hardship discharge. If the judge grants this, he will discharge your debts and absolve you of repaying them without making you convert to a Chapter 7. This option is not usually successful, however, if you fail out at the beginning of your plan. Generally, the judge will require that you have made most of your scheduled Chapter 13 payments.
  
  

Tip

• If you're only having trouble making one or two payments, contact your lawyer or the trustee immediately. The trustee will notify your creditors and they may be willing to work with you if the setback is only temporary and you believe you can resume payments shortly.