The Coronavirus Shutdown: What Happens if I Can’t Make My Chapter 13 Plan Payments

In a chapter 13 plan you are supposed to send in regular plan payments to the bankruptcy trustee.  The Trustee disburses the money to the creditors. Usually this payment comes right out of our paycheck after the plan is confirmed.

If you don’t get a paycheck because you were laid off because of COVID19, those payments will also stop. What happens now?

Well, if you aren’t getting paid I can’t expect you to make that payment. Will the Trustee understand?  What happens to my case?

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 last year to see what the Chapter 13 Trustees did when they did not receive plan payments because of a government shutdown.

First of all, they know this is happening.   When one person loses their job, the Trustee might move pretty quick to file a motion to dismiss.  When everyone is getting laid off the Trustee just can’t get all those motions filed.  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 shutdown last year, 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 crisis is over and you are back to work, 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 Can’t Get Caught Up?

After the Government shutdown, 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 some payments to essentially be skipped.

Part of the COVID relief  legislation provided for the extension  of Chapter 13.  It provides for plans to be extended an additional 2 years to make up for missed payments.  While a longer plan sound bad, it can be helpful if you are asking for your plan to be modified.  This could allow you to make up for missed payments without increasing you plan payment.  To do this we have to file  motion to modify the plan and have you sign an affidavit explaining how your finances were set back by COVID 19.

The legislation also provides that COVID relief checks don’t count as income for bankruptcy purposes.  This means the Trustee can’t argue you have  to turn this government relief over to them to go to your creditors.  This also means it won’t count as income in determining what you can pay to the Trustee.

In some situations, we may even have to look at your option to convert to a Chapter 7 bankruptcy.  Unfortunately, it seems likely that some people may not have a job to go back to when this is over.  Hopefully everyone will still have a job to go back to when this is over.  But we want to plan for the worse and hope for the best.  If the best happens, that is easy to deal with.

Conclusion – What to do in the Meantime

Hopefully when this is over everyone will be able to get back to work. But until it is over, you have enough to worry about without having to consider your Chapter 13 case getting dismissed.  Give us a call and set an appointment by video conference or phone.  (See our Coronavirus Plans)  We can figure out your options.

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: Budgeting for Coronavirus.

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