What you can do when you fall behind in payments while in Chapter 13
Life does not always go as expected. If it did, people would not file for bankruptcy. Even after filing, life goes on and things do not always remain the same. So what happens when the unexpected hits and you fall behind?
Most people file a Chapter 13 bankruptcy case because they are trying to save their home. The most important payments to make while in that plan are the trustee payment and the mortgage. Fall behind on the trustee payment and you can expect a Motion to Dismiss and eventual dismissal if you cannot catch up. Fall behind on the mortgage and expect a Motion for Relief from Stay so the mortgage company can begin, or at least threaten, foreclosure proceedings.
If this happens to you, there is hope. You do have options. Options include catching up before the hearing, a drop dead order (not as bad as it sounds) or amending the plan.
Let’s face it, if you had the money to make a lump sum payment, you would not have been behind in the first place. If you can get the money and catch up before any hearing on the matter, the courts will usually dismiss the motion or it will be withdrawn. Sometimes, you can get the hearing continued and get more time to catch up. With this option, you have the least amount of risk because the motion essentially goes away. Of course, if the mortgage company filed, you will have to pay the attorney fees and filing fees.
DROP DEAD ORDER
A drop dead order is not as bad as it sounds. It just means that you have one last chance and a fixed deadline to catch up. Most of these orders spread the catch up payments out over 6 months. In addition to the catch up payment, you must make the regular mortgage payment and the regular trustee payment. If you miss a payment to mortgage company, relief is automatic. Once that happens, you have no protection from the bankruptcy court, not even if you convert or dismiss and refile.
The Bankruptcy Code allows you to cure any default. Several courts interpret that to include post-petition defaults, such as falling behind on the mortgage or the plan. Some courts limit how far you can be behind to as little as 3 months. Others require your amended plan to catch up the default in a “reasonable" time, usually around 12 months.
Which option you choose, depends on your situation and your resources. You may have other options as well, like challenging the default. If you have made all of your payments, you can fight. If not, all hope is not lost.