We are fast approaching the possibility of a wave of bankruptcy cases across the United States that will be very different from the 2008 mortgage crisis and crash. So far, it appears that the tide has significantly receded with bankruptcy filings dropping far below norms, which means there will likely be a tsunami awaiting just as soon as our government stops the printing presses and cuts off household support. Unfortunately, we are still in the midst of a global pandemic of variant proportions with Delta, Lambda and Mu Covid variants making their way through our unvaccinated communities. Until then, we are walking a fine line with when to cut off support. So, if you find yourself unable to book a reservation at the Four Seasons, you may need to inquire about bankruptcy under Chapter 13 and you’re seeing this because your plan may fail. Here’s why.
Chapter 13 is typically considered the chapter of choice for those wage-earners seeking to catch up on missed car or house payments and avoid repossession of a vehicle or foreclosure of a home. Confirmation of the chapter 13 plan that provides for payment of such arrearages over many months is necessary to begin the process of making up for missed payments. Completion of a chapter 13 plan through discharge can take 36 to 60 months and is very difficult to achieve even in attorney-represented cases. Approximately 55 percent of attorney-represented cases reach confirmation. The number of self-represented debtors that manage to get to confirmation of a chapter 13 plan is 0.4 percent – clearly demonstrating that it is nearly impossible for this population to succeed in chapter 13. This is according to the 2011 Pro Se Annual Report published by United States Bankruptcy Court, Central District of California. This is not to say you won’t make it, but just like any other long-term commitment, this takes budget discipline and resolve.
Once you’re plan is confirmed, your case is not over until after you’ve made your final payment. Here are the four reasons your case can get dismissed without your goal of a discharge:
- Failure to Make Your Plan Payments On Time. This is the number one reason cases get dismissed. You don’t get a payment or coupon book. You don’t get a monthly reminder. It’s your duty and responsibility to mark your own calendar and make those payments on time. Now, your attorney can control (to a certain extent) your payment due date because it will be the same date as your case is filed. This date cannot change, so be sure to choose wisely if you can. If you’re stopping a legal proceeding such as a foreclosure, you may not have time to choose your date.
- Often a failure to make timely plan payments is because you chose to mail your payment rather than pay electronically through bank or payroll deductions, or through your chapter 13 trustee’s electronic method. Your attorney can provide all the information you need for your particular trustee, so that you can ensure those payments are delivered on-time for five years.
- Failing to File and Deliver a copy of your Tax Returns to the trustee is a less common reason cases get dismissed, but it can happen. Under your confirmed Chapter 13 plan, you must file your taxes on time and deliver a copy to your trustee. Often, your attorney will ask that you send a copy to their office and they will often forward those taxes to the This gives your attorney a chance to review your taxes and address any potential issues before informing the trustee. This puts you and your counsel in the driver’s seat. (Pro-Tip: Call your attorney just as soon as you know if your income has either increased or decreased and be sure you’re not owing taxes or getting a large refund as you may be required to turn that over to the trustee too) A saavy lawyer can help you keep your budget stable and prevent you from having to turn over any more money that is necessary in your case.
- Finally, an often overlooked reason your Chapter 13 case would be dismissed is if you missed any step-ups or payment changes in your Plan. This means that if you have a car loan or 401k loan that will be completed during your case, you must then take those payments and turn them over to the trustee causing an increased plan payment. We call these “step” plans. The requirement under the Bankruptcy Code is that the trustee must secure as much as they can for creditors and you must turn over all your disposable income to your plan. Your lawyer can and must explain this to you. Be sure to obtain a copy of the Order Confirming your Plan as that information can be found in that order.
A Chapter 13 Plan is akin to a debt consolidation repayment plan with 0% interest paid to unsecured non-priority creditors where you can pay an amount from 0% to 100% of all your debts depending upon many different factors. These cases are complex and counsel is highly recommended. What’s great about these cases is that hiring an attorney to represent you is made affordable because they can get paid some of their fees through your plan payments. It’s worth a consultation to see if this government program is right for you.
