The government shutdown is going to cause intense financial pressure on one very select group of people – government workers and contractors who are in a Chapter 13 Bankruptcy payment plan.
Individuals in a chapter 13 plan are supposed to send in regular plan payments to the bankruptcy trustee, who disburses the money to their creditors. If their paycheck is stopped because of the government shutdown, those payments will also stop. What happens now?
If you are one of our bankruptcy clients, I may have told you when your plan was confirmed that if a payment didn’t come out of your paycheck, you needed to send it in yourself. Well, if you aren’t getting paid because of the government shutdown, I can’t expect you to make that payment. Will the Trustee understand this as well?
Because this happened not too long ago, we have a pretty good idea about what the Trustees will do in this situation. We only need to look back to 2013 to see what the Chapter 13 Trustees did then when they did not receive plan payments because of a government shutdown.
First of all, they know you are a federal employee or contractor. So if they stop getting payments from you, they have a pretty good idea what is going on. What will they do in light of this situation?
Will My Bankruptcy Case Get Dismissed?
Based on what the Trustees did during the 2013 shutdown, it is safe to say the Trustees aren’t going to be rushing off to file a motion to dismiss your case for failing to make a payment. When the shutdown is over, and when (or should I say if) you receive your back pay, the Trustees will want you to make those missed payments.
After the last Government shutdown, the Trustees were even willing to work out payment plans. In some cases they didn’t object to motions to modify confirmed plans for those government contractors who didn’t get back pay.
What If I Don’t Get Back Pay After the Shutdown is Over?
In 2013, if someone didn’t make up those back payments after the shutdown was over, the Trustees eventually sent a letter demanding that payment arrangements be made within 30 days. Typically the Trustee would want those payments fully caught up in 60 or 90 days.
If the person was one of those who didn’t get back pay, the Trustees were willing to work out slightly more extended plans. In some situations they did not oppose a motion to modify the Chapter 13 plan. Sometimes the modified plan would increase the plan payment slightly to make up for the missed payments. In some cases, where the person didn’t receive back pay, the modified plan provided for the some payments to essentially be skipped.
Conclusion – What to do in the Meantime
Hopefully this shutdown is over without anyone missing a paycheck. But until it is over, you have enough to worry about without having to consider your Chapter 13 case getting dismissed.
So set aside those fears and focus on keeping your other bills current until your paychecks start coming in again. For some help on figuring out a strategy to pay your bills see our post: The Federal Worker’s Government Shutdown Budget.