If you have filed for bankruptcy and been given an opportunity to repay your debts through a Chapter 13 bankruptcy plan, you should consider yourself lucky. It may not seem like luck is on your side, but consider the alternatives.
You could not repay your debts at all and remain in a delinquent status on your accounts. This will tremendously damage your credit and could prevent you from ever obtaining credit in the future. Similarly, if you default on a mortgage loan and do not arrange a payment plan to get caught up on your payments, you risk losing your home to foreclosure.
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If you qualify for Chapter 7 bankruptcy protection, your debts will be eliminated and you will no longer be liable to repay those debts. However, a Chapter 7 bankruptcy is more likely to negatively impact your credit that Chapter 13. Since your debts were eliminated, and not repaid, your credit will reflect the fact that you did not repay your debts. Mortgage loans, student debt loans and tax debts do not qualify for discharge in Chapter 7. Therefore, you will still be liable for these debts.
Chapter 13 Bankruptcy
A Chapter 13 plan gives you the opportunity to repay your debts through a monthly payment over a specified period of time, typically 3 to 5 years. Repaying your debts in full through modified payment terms will reflect better on your credit report than a Chapter 7 or ignoring your debts completely. Although your credit report will display your Chapter 13 status, many lenders are willing to overlook this mark as they know that you were able to satisfy your debts in full before you were discharged.
So now that you have a Chapter 13 case, what happens if you cannot afford to make your payments? In short, there are two answers. First, your case can be dismissed. Second, you will no longer be protected under the automatic stay. Let's discuss both further.
Case Dismissal
The court may dismiss your case if you fail to comply with the terms of the payment plan. If your case is dismissed, your repayment plan will become voided and you will remain liable for repaying your debts on your own. Even worse, you may not be able to file again for some time after your case is dismissed. However, if you voluntarily request a dismissal of your case, rather than have it dismissed by the court, you may reserve the right to file again within a short period of time.
Sometimes it seems as though bad things happen in clusters. You have already been having a tough time repaying your debts and when you filed for bankruptcy. Maybe you were laid off, couldn't find a job or suffered a medical condition that is adding to your debt. If you find yourself unable to maintain your Chapter 13 plans, you should contact a bankruptcy attorney right away. A bankruptcy attorney can review your situation before miss a Chapter 13 payment and help find a solution to your extended financial troubles. They can also help you request a dismissal before the court does, saving you time and additional problems.
Automatic Stay Is Lifted
When you file for bankruptcy, you are protected from creditors and lenders by an automatic stay. This motion prevents creditors from contacting you in efforts to make collection attempts. More importantly, this motion protects your assets from seizure and liquidation by creditors. If you filed for Chapter 13 in order to keep your house out of foreclosure, this protection will be removed if you default on your Chapter 13 payments. Any of your secured debts will be at risk for liquidation by creditors once the automatic stay is lifted.
Many people don't realize that they will have to maintain their current mortgage payments each month in addition to their Chapter 13 plan payments. The delinquent amounts are rolled into the repayment plan, but the mortgage payment is not. If you are unable to keep up with your plan repayments, contact a bankruptcy attorney right away. You don't have to fall behind and have your case dismissed due to default. The best time to take action is before you miss a payment.
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