What Happens if I Stop My Chapter 13 Payment?

by Kent Anderson, Esq.

June 7, 2009

If you stop making Chapter 13 payments and do nothing else, your bankruptcy case will be dismissed and the court will not enter a discharge order.  This means you will lose the benefits of your bankruptcy and will no longer be protected from your creditors.

When your bankruptcy case was filed, the court entered a stay order stopping your creditors from taking any action against you.  When a case is dismissed the stay order disappears and creditors can resume collection efforts.  Without the stay order or a bankruptcy discharge, creditors can sue you, garnish your wages or take your property to pay debts.

Normally, when your Chapter 13 plan is completed, the court enters an order discharging all of your dischargeable debts.  The discharge order permanently prevents your creditors from taking action to collect from you.  To complete the plan successfully, you must make all payments required by the plan. If the case is dismissed before you complete the plan, you will not receive a discharge.  If no discharge is entered your creditors are free to collect once the case is dismissed and the stay order is dissolved.

If you can no longer make the payments required by your plan, there are things your lawyer can do to help you.  First, your lawyer may be able to modify your Chapter 13 plan and reduce the amount of your payments.  Second, it may be possible to convert your Chapter 13 to a Chapter 7 case if you otherwise qualify.  Third, you may qualify for an early discharge under hardship conditions.  Finally, it may be possible to file a second bankruptcy case if the one you originally filed is dismissed.

Payments due under a Chapter 13 plan can be reduced in some situations.  Oregon bankruptcy judges allow payment modification quite freely if it is called for by a change in circumstances.  To change the original plan, you must file a modified plan with the court and send notice to your creditors.  The modified plan is subject to the same requirements as your original plan, but a cut in pay or unavoidable increase in expenses can be a reason to reduce your monthly payment.

If you can no longer make payments to a Chapter 13 trustee, you may still be able to get a discharge under Chapter 7 if a motion is filed to convert your case.  The motion must be filed in good faith and all other requirements must be met to qualify for a Chapter 7 discharge.  No plan payments are required if the case is converted and discharge under Chapter 7 will protect you from all creditors covered by the discharge.

Under 11 USC Section 1328(B), the bankruptcy code sets out three requirements for a special early discharge under hardship conditions:  (1) Circumstances preventing repayment must not be your fault, be beyond your control, and not have been anticipated at the time the plan was proposed. (2) Your creditors must have received at least as much payment as they would have received in a Chapter 7 case; and (3) it must not be feasible to modify your plan and continue in Chapter 13.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.

Last modified: October 22, 2012