07 Aug Bankruptcy and a Motion To Suspend
A Chapter 13 bankruptcy is a bankruptcy where you can adjust your debts and “keep your stuff” as one trustee says. During the lifetime of the Plan you might fall behind on the payments that you have agreed to make to keep your stuff. When this happens a Motion to Suspend the Plan payments can prevent your case from being dismissed while bringing the account current. However, it is not like winning the lottery as some debtors believe because there are restrictions and repercussions to filing a Motion to Suspend. Your Plan can only last 60 months and generally you can never fall behind more than two months worth of Plan payments before a Motion to Dismiss is filed in your case.
For this example we will assume that you are paying a car and a home through the Plan. Further the Plan payment will be $1500 per month and this is an above median Plan. In English, this means you must pay the trustee $1,500 a month for 60 months in order to receive a discharge.
Now let’s say you are in the 25 month of your case and you receive a Motion to Dismiss because of three missed payments. In other words you are $4,500 behind in your case. You might be able to suspend or roll the $4,500 due and owing to the end of the 60 month period. But suspending the Plan payments will have a ripple effect on your case. This means that even though the suspension may bring your Plan current the suspension prevents the car and home from being brought current.
If you are paying the car and home through the Plan and you are not making this payment each month, the result is that these assets are not being paid. As a result the creditor can file a Motion to Lift Stay to either foreclose on the home or repossess the car. Why? Because you are not making the payments as agreed. Even though you are in bankruptcy you still must follow contract law and pay for asset if you wish to keep it. Bankruptcy does not give you the house or car for free.
Another effect that generally occurs when you suspend payments is that the secured accounts while not being paid gather late fees and accrued interest. Further, if the creditor has filed a Motion to Lift Stay you will now be charged with their attorney’s fees to file the Motion and attorney’s fees from your own attorney to respond to the Motion. Keep in mind that you only have 60 months to complete this Plan and 25 months have already passed. Stay with me as I walk you through the example.
So you have to take the $4,500 plus late fees and accrued interest, plus any attorney’s fees and spread that debt over the 35 months remaining in your case. So if the costs comes to $1,000 you add the $4,500 to this and divide the resulting $5,500 by the remaining 35 months in the Plan. This means your Plan payment must increase by $158 per month.
$4,500 (three months missed payments) + ($1,000 costs and fees) = $5,500 / 35 months remaining in your case (60 months – 25 months that have passed) = $157.14 rounding up to $158 per month.
This is an over simplification of what will take place but it gives you an idea of what will take place. This example will only work if and only if the vehicle and home creditors agree that you can roll the payments due and owing to them over the remaining period of time left in the Plan. It is not unusual for the home creditor, known as a mortgage, to jump up and down and say that they want their account to be current within six months. So if this is the case the math begins to become more complicated which means it is more costly for you.
There is nothing easy about bankruptcy and nothing is cut and dry about a suspension. So if you are falling behind or if you think you are going to fall behind, make a plan of action. What is your Plan payment? How many months do you think you are falling behind? How much money can you send during those months that you are struggling? Is it time to consider surrendering the home or the vehicle? How large of a tax refund will you receive?
By providing all this information ahead of time to your attorney, you both can sit down and strategize about how you are going to successfully navigate through these difficult periods in your bankruptcy.
Remember that knowledge is power. The more knowledge you have about how to handle the missed payments in your case and the ripple effects of a suspension, the more power you will have to obtain a successful discharge in your Chapter 13 bankruptcy.