What to Do if You Can’t Make Your Chapter 13 Bankruptcy Payment – Part 2
Filing a chapter 13 bankruptcy can often be the perfect solution to your debt issues, especially if you’re way behind on mortgage or auto loan payments, or if you need to protect some piece of property (such as a home with significant equity) that you might lose if you filed the more simple, “straight” chapter 7 bankruptcy.
Nevertheless, keeping up with the requirements of chapter 13, especially the requirement of monthly payments for 3 – 5 years, can be a struggle for many folks. On average, less than 1/2 of chapter 13 bankruptcy cases end in a chapter 13 discharge. Having represented hundreds of individuals and couples in chapter 13 (the vast majority of whom HAVE received a discharge), I firmly believe the success rate is so low because debtors in bankruptcy don’t often know how to manage their bankruptcy case after an unexpected change in their lives, and don’t get help from their attorney.
In my introductory post on this topic, I gave two pieces of advice if you are behind on your chapter 13 plan payment:
1) Don’t panic
2) Call your attorney. If your attorney won’t help you, find another attorney who might be able to help you, because this is a problem that can commonly be fixed.
Today, I’d like to talk about one possible possible solution to missed chapter 13 payments: making an arrangement to catch up payments with your bankruptcy trustee. Before continuing though, I want to stress this information is only applicable to those filing chapter 13 in the Denver metro area, or elsewhere in Colorado. We have two bankruptcy trustees in Colorado, Sally Zeman and Douglas Kiel, and each has their own policies on missed payments.
Notably, if your bankruptcy trustee has never before requested dismissal of your case, and are less than 60 days past-due, and you’re not particularly close to the end of your repayment plan, you won’t likely need to make any arrangement to catch up delinquent payments, and can catch them up on your own or talk with your attorney about other options. This is because neither trustee is likely to bring up the relatively minor delinquency with you or your attorney. While other parties to your case can request dismissal for failure to pay, in my experience, such a request by a party other than the trustee (or an unhappy ex-spouse or business associate) is exceedingly rare. As such, in most such cases, you could catch up the payments on your own schedule, so long as you are completely current by the time your last payment is made.
If you are further behind than 2 months, you may receive a motion to dismiss your case. In such a situation, Ms. Zeman’s office generally will agree to give the person or couple 2 – 3 months to bring delinquent payments completely current, while making their continuing regular payment. In such a situation, she will typically require the debtor to sign a “statement of arrangements” laying out the exact repayment schedule, which is then typically made an order of the court. In certain cases, she may also require the debtor to sign an agreement (“stipulation”) that they will not fall behind again. In the event of a future default, the debtor MAY be given up to two notices of default, which must be cured within about 10 days, or the bankruptcy case may be immediately dismissed.
In contrast, Mr. Kiel’s office does not, to my knowledge, enter into any sort of written agreement to cure payment arrears, instead deciding, on a case-by-case basis whether to verbally agree to allow the debtor a short period of time (20-40 days or so) to cure the delinquency. Because this provides no court-approved guarantees to the debtor, I rarely recommend my clients make such an “arrangement” with Mr. Kiel.
Do I recommend my clients sign a “statement of arrangements” with Ms. Zeman’s office? The short answer is – it depends. Often, such an arrangement will be just what the debtor needs, and it will cost them very little (or no) hassle or attorneys fees. In other cases, it may be a terrible idea, and set the debtor up for failure, or just be far less beneficial than other options, such as a modification, conversion or a hardship discharge. I’ll discuss these alternatives in later posts on this important bankruptcy issue.
Andrew Trexler is a Bankruptcy lawyer serving clients in the Denver Metro Area and elsewhere in Colorado.