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Making Your Chapter 13 Plan Payments
by Adam Mack
The Nuts and Bolts
The plan payments are made to the trustee, including mortgage payments. 1 The amount of the plan payments varies according to how much disposable income has been allotted to repay the restructured debts and how long the plan will be in effect (which can be for anywhere between 36 and 60 months). Payments are periodic (usually monthly) installments that can be paid by check or money order, or the debtor can voluntarily authorize the trustee to automatically deduct the plan payment from the debtor's pay check. (I highly recommend the automatic deduction option to my clients for reasons I'll explain below.) This authorization happens via court order and so it can only be modified by the court, not the trustee.
Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), debtors didn't need to start making plan payments until after their plans were confirmed; however, with the passage of BAPCPA, debtors need to start making plan payments within 30 days of filing their petition, even if the plan has not yet been confirmed. This is baffling to some of my clients, and with good reason, but it's critical to comply with plan payment requirements.
What Happens If I Miss a Payment?
Unlike most credit companies that will simply charge you a late fee, if you're late with even a single plan payment, the consequences are considerable. The trustee will move to dismiss for non-payment and all the money and effort you put into your bankruptcy will be wasted. There is no forgiveness for missing or even being late with payments, period.
An example of what can happen is a recent client who had a $150 dental bill. He had to decide whether to make his $100 plan payment or pay the dentist, and he decided to pay the dentist instead. Because he didn't make his payment, his case was dismissed. Fortunately, his plan was shorter than 60 months and so I was able to file a motion that allowed him to add on that $100 payment to the end of the plan (essentially extending it for one more month), but I had to charge him legal and court fees to do that. In the end, his decision to pay the dentist ended up costing him an additional $350. The saddest part is that the dentist would have worked out a payment plan with him if he just would have asked.
In light of these kinds of situations, I recommend my clients go with the automatic payment option. Statistically, you're astronomically more likely to successfully complete the bankruptcy with automatic payments. In the instance I mentioned above, he had enough disposable income and time in his plan that we could work with him, If you don't have enough wiggle room (for instance, if you're maxed out at 60 months), your case will be dismissed and you'd have to start your bankruptcy all over from scratch.
The Most Important Part
Making your plan payment is a very serious matter as far as the courts are concerned. It's critical that every payment be made - on time! If there's ever a time you're going to be 100% exact in making payments, this is it. If you have any questions, contact a Kansas bankruptcy attorney for more details.
1. Pursuant to Standing Order 08-3.↩