In Chapter 13 bankruptcy, a debtor does not have to sell their property to eliminate their debts. Instead, they need to repay most of their debts over three to five years, and then some of the remaining debts will be discharged. The debtor will have to make these payments on a regular basis until their repayment plan ends. If they miss a payment, the court can dismiss their case, and they can end up losing property.
Before the court approves the plan
After a person files a petition for Chapter 13 bankruptcy, they must file a repayment plan that the court must approve. This plan must include fixed amounts that the debtor will need to pay the trustee each month or two times a week. A debtor must not wait until the court approves their repayment plan to make the payments. They must start doing so within 30 days after filing for bankruptcy. If they don’t do this, the court will not approve their bankruptcy case, and the creditors will have the right to pursue them for their debts.
After the court approves the plan
The debtor must follow the plan’s payments so that the trustee can distribute them among all their creditors. When the debtor misses a payment, the trustee can file a Motion to Dismiss for Material Default. If this happens, the debtor will lose their right to the automatic stay and the possible debt relief they would have gotten if they had completed their plan. Losing automatic stay means that the creditors can continue with their collection efforts.
Some trustees do not take action unless the debtor has two or more due payments, but some can also dismiss the case when only one payment is missing. The debtor can stop their dismissal if they catch up with their missed payments and prove to the court that they can keep paying the others. Also, if the debtor does not pay, the court can convert their case to a liquidation case under Chapter 7 bankruptcy. If that happens, the debtor will have to sell their property to repay their creditors.
Modifying the plan
When the debtor’s circumstances change, and they cannot keep paying the plan they had proposed, they can ask the court to reduce the amount they need to pay on a regular basis. Modifying the plan is always better than not paying at all. With a plan modification, debtors can keep their property and get a second chance with their repayment plan.