What Happens If You Miss a Bankruptcy Payment?

The following is presented for informational purposes only and is not intended as legal advice.

Personal bankruptcy is often the last resort of individuals and families that are simply too overwhelmed with debt to ever pay their way free on their own. When you think of bankruptcy, you're probably thinking of Chapter 7 bankruptcy. This is the type of bankruptcy that more or less wipes out your eligible debts. You'll likely lose your non-exempt property in the process, but there isn't a payment plan and debts are discharged as soon as the process is complete.

You may not qualify for Chapter 7 bankruptcy, however, in which case you may end up having to file for Chapter 13 bankruptcy.

A Chapter 13 bankruptcy is also known as a wage earners plan or reorganization bankruptcy and it means you'll still have to make payments to your creditors. The payment plan won't repay your debts in full and is calculated based on your disposable income, so it's designed to be at least more affordable than your current payments.

But what happens if you end up on a Chapter 13 payment plan and fail to make a payment?

Trustee will notify your creditors

As part of your bankruptcy the court will appoint a third party to serve as your bankruptcy trustee. Your monthly payments typically go directly to the trustee, who then distributes the funds to your creditors in accordance with your court-approved repayment plan.

Fail to make your monthly payment and the trustee will likely begin by letting you and your creditors know that you are late on your payments.

If possible, contact your trustee before you miss a payment. If a loss of income or other setback is making it impossible to make your required payment, your payment may be eligible to be adjusted. In an extreme case, you may even become eligible for a Chapter 7 bankruptcy due to lack of income. Stay in communication with your trustee to avoid falling behind in the first place.

You may have the chance to catch up

In some cases, the trustee may allow you to catch up on missed payments by spreading the overdue amount over the remaining plan period. However, this depends on the specifics of your case, and not all trustees are so accommodating.

You may have your bankruptcy dismissed

If you miss multiple payments and fail to communicate with your trustee, the trustee may file a motion to dismiss your bankruptcy case. Dismissing the case means you lose the protection of the bankruptcy court, and creditors can resume collection actions. Essentially, all the work you did to set up the bankruptcy is wiped away and you'll be left with your original debts.

Collection activity will resume

Even before your bankruptcy is dismissed, creditors may seek permission from the court to resume collection efforts, such as foreclosure or repossession, if your plan is not being followed. 

You may not be able to file bankruptcy again

Courts typically don't like it when you fail to comply with court orders. One potential outcome of not making your bankruptcy payments is that the court may dismiss your bankruptcy with prejudice, which is as unpleasant as it sounds.

If your case is dismissed with prejudice, you may be barred from filing another bankruptcy case for an extended period. So even if your circumstances change and you're better able to handle a Chapter 13 payment plan, that may no longer be an option for you.

Again, if you're struggling to make your bankruptcy payments contact your bankruptcy trustee immediately. They can work with you to find a solution that allows you to continue with the bankruptcy process while addressing your financial challenges.

And if you're wondering if bankruptcy is the best option for your debts, let us help. We can review your debts, goals, and financial situation and provide suggestions on the best way to overcome your unique challenges. Debt counseling is free and available 24/7, online and over the phone.